Demonetisation to lower down cement growth
Ratings agency India Ratings & Research expects demonetisation to derail the growth of Indian cement sector. Cement production is likely to grow by around 4% in 2016-17 (April-March) as against earlier estimate of 4%-6% growth for the financial year, India Ratings said.
India Ratings had highlighted in an earlier report that the impact of demonetisation will flow to the economy mainly through the real estate and construction sector, which has strong linkages with sectors such as cement and steel and they will turn credit negative in the short-run.
The lower cement output for 2016-17 is expected due to the fall in production of the sector in the month of November-December 2016. Cement production has grown by 4.3% during April-November 2016 and it recorded a growth of 0.5% in November 2016 as against 6.2% in October and 5.5% in September.
The agency notes that post demonetisation all India volumes declined in the range of 20%-25% in November-December 2016; while pan-India realisations have declined in the range of Rs 15 – Rs20 per bag in the same period.
Ind-Ra expects that post demonetisation, demand from the housing sector, which contributes around 65% cement demand, is likely to decline further. The demand from individual home builders, which mainly consists of farmers, are expected to increase in 2016-17, due to a better monsoon. However, post demonetisation, India Ratings expects, cash availability with individual home builders will also be limited.