Cement demand is unlikely to recover for another year due to demonetisation and an increase in prices for diesel and pet coke that has placed cost pressures on most cement makers, according to a report in The Economic Times.
In a survey conducted by JM Financial, cement volumes across multiple markets were adversely impacted following implementation of the government’s demonetisation policy in November.
The northern and western regions witnessed a 25-50 per cent fall in sales. Some southern regions experienced a decline in the first week of December. The eastern region saw a 70 per cent demand decline in November, but demand recovered in the subsequent period to about 70 per cent of the usual levels.
Surveys indicated that companies have announced INR10-25 per bag price cuts in the northern and western regions.
While investors expect things to normalise in three to six months, the impact is enough to postpone the recovery in cement demand by another year or so, according to analysts.
“We expect demonetisation to have material impact on second half of FY17 earnings of cement companies,” said Abhishek Anand, an analyst at JM Financial. “We expect a decline of 5-10 per cent in volume for second half of FY17 and reduce our growth expectation for FY18, as we factor in delayed recovery.”
Stocks of cement companies have fallen 10-30 per cent since November 8, the day Prime Minister Narendra Modi announced the decision to withdraw INR500 and INR1000 as legal tender.