Home Industry Trends Cement manufacturers keep their fingers crossed

Cement manufacturers keep their fingers crossed

For the cement industry, March is an important month as the sales and marketing teams get into ‘do or die’ mode during this month. Its known as momentum month for the industry where brands do their best to meet their volume targets and, in the process, often pricing takes a backseat.

However, this year’s March is quite different – in fact it has stopped the onward march of many cement companies. Normal March Momentum is missing this year, ostensibly due to breakout of pandemic which initially thought to be restricted to China alone. But the developments in the later part of February and early March had forced the government to take some proactive steps to curb the spreading of the pandemic. The government had to use the last and the most effective weapon in its armour, that is, national lockdown bringing the whole nation into almost standstill.

Southern market worst performing

Even before the outbreak of pandemic, Southern cement market was worst performing as it was affected by excess capacity and demand slowdown. Further, the precautionary norms were getting stricter faster in the South on a daily basis. The situation may not be different once the lockdown is lifted. On the other hand, North and East were doing relatively better. Though the March Momentum was missing, despatches were better as compared to initial days of the fourth quarter.

Dull retail demand

However, the retail demand was slightly lower as compared to institutional demand. This was also partly due to non-availability of construction workers. After Holi festival many construction sites were giving a deserted look mainly due to absence of workers.

Strict control over credit days

The request of prolonged credit days by many channel partners and customers do exist but not accepted in most cases by the manufacturers. Cement manufacturers are very selective in such cases and prolonged credit days are allowed only in rare cases for channel partners/contractors with very low risk.

Capex programme go haywire

Its not just cement demand that’s being impacted due to lockdown but many companies’ capex plan too have gone haywire because of lockdown. According to many of them, there will be 11/2 – 2 months standstill on construction sites and re-commencement of construction activities cannot be sudden but gradual. Also, there may be shipment delays by the manufacturers of capital equipment as the COVID-19 has affected globally, especially capital equipment manufacturing countries.

Not much impact on pricing so far

Its important to note that impact COVID-19 on pricing was not on expected lines and surprisingly, pricing didn’t react negatively to the weakening demand sentiments even after some major steps taken by the government to contain the pandemic. However, its difficult to predict how the price will behave once the lockdown is lifted and economy starts moving. However, companies like Dalmia Bharat expect sharp recovery in the prices once the lockdown come to an end. It is believed that manufacturers in the industry are incapable now of taking price reductions given the ongoing volume loss. Price can be the only saviour for the moment and the current situation is very different.

Best turns worst

However, the dealers and manufacturers were almost in near unanimity in saying that if COVID-19 had not happened, fourth quarter would have been the best quarter for the industry in 2019. Further, that would have also helped to maintain the momentum in the next financial year. Only thing that would have derailed the progress in the fourth quarter (in the absence of COVID-19) would have been ‘Yes Bank’ crisis. However, deft handling of the issue as has happened would have lightened the impact on the industry and on the economy as a whole.

How the current lockdown will pan out in the new financial year? Its little too early to predict and we don’t know whether the lockdown will come to an end by mid of April or will continue thereafter. In all probability 2020-21 Financial year will have only 11 months or even less and it may be impossible to cover up a month’s loss and show annual growth. Initially, it was expected that the industry may lose 10 days out of 90 days in the last quarter of FY20 and situation would get back to normalcy in the new financial year. However, as the things stand today, it will be the new year which is going to be impacted more than the current financial year. Further, if the effects of pandemic linger around for longer (than expected) it may have even worst impact on the cement industry and on the whole economy itself. It all depends how soon we will be able to garner our resources and roll back to normalcy. Here we may have to learn a lesson or two from China. After all, COVID-19 is their gift to the world.

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