With Lockdowns easing; Cement Demand Recovers
With the gradual easing of lockdowns and pre-monsoon pent-up demand, June is likely to have registered sequential growth of about 20 percent in cement volumes, said India Ratings in its report. The month of April is likely to have seen a sequential moderation of around 10 per cent in volumes, owing to the dual impact of the second Covid-19 wave-led state lockdowns and a strong March base. As restrictions intensified due to rising cases, May is likely to have seen a decline of around 25 per cent compared to March, it said.
While volumes are seeing a gradual pick up, continued increase in pet coke, coal and diesel prices, cement companies are likely to see a moderation in EBITDA/tonne in Q1FY22. In FY21, cement companies saw significant release in working capital mainly led by an increase in payables and a reduction in inventory as companies tried to optimize management of funds during the pandemic.
Price hikes were taken in most regions in June 2021, though reports indicate partial rollback in many pockets except North. While the increase in input costs is likely to prevent cement companies from reducing prices significantly, the seasonally weak second quarter ahead could make it difficult to sustain prices, it said.
With regard to capex announcements, FY21 saw capacity additions of 14.4 million tonnes, of which capacities of 10.7 million tonne were commissioned in Q4FY21 as labour shortage and cash conservation limited the progress in H1FY21. The quick recovery and low additions in the past couple of years fuelled capex plans with a supply pipeline of around 70 million tonnes over FY22-FY23, which is the highest ever two-year addition since FY11. While the second wave has pushed completion timelines by a couple of quarters for most companies, it has not led to any capex deferral nor has it deterred companies from announcing medium-term expansion targets, said India Ratings.