Cement dispatches have already declined by 20 to 30 per cent due to the recent wave of floods in the country and the trend is expected to continue. Topline Securities expect that this will cause cement prices to drop by between INR10 to INR20 per bag during the next two months on the back of lower sales.
Apart from lower cement demand during the rainy season, the floods have severely affected the road and distribution networks. This will negatively impact local cement sales, Topline Securities analyst Furqan Punjani informed.
Some investors believe that reconstruction activities will cause an increase in demand for cement, similar to what happened after the 2005 earthquake, even though the scale of the disaster has not yet been estimated. The reconstruction will be prolonged this time due to the nature of the calamity.
Furthermore, agricultural losses are expected to be much more than the loss to infrastructure, according to industry experts.
“Development spending may be cut drastically despite reconstruction activities as it has been reported that government may reduce development expenditure by 50 per cent,” according to Topline securities’ analyst, Furqan Punjani who believes that this could affect local cement demand.
Total cement dispatches in July’10 dropped by 13 per cent with major contribution by exports which fell by 31 per cent while local sales posted no increase. Exports of cement having 32 per cent share in total dispatches are also affected by the damaged road network.
With UN, World Bank and other donor agencies pledging money for reconstruction activities, will bring some relief to the sector in the second half of the year.
According to the World Bank’s initial estimates, agriculture, housing and infrastructure has witnessed the biggest blow. More than US$1bn; including a US$900mWorld Bank loan, have been pledged by different agencies up until now, this is expected to help local demand recover.