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Summary
Objective
Even as Covid-19 culls demand, crude to cushion blow to profit
Cement industry margins hitting a seven-year high in fiscal 2020, building on the government’s infrastructure push and hefty price hikes. However, it now seems to have developed cracks. Economic activity has ground to a near halt and the government has diverted spending towards health and social welfare owing to the Covid-19 pandemic. As a result, cement demand is set to plummet.
Will the all-round gloom in the economy play spoilsport and for how long? Specifically, will the price hikes sustain amid worries of waning demand?
While a few cement plants have started operating, they are facing challenges around logistics and availability of inputs. Crude and other energy commodities may be hovering at historical lows; but the price advantage will not help much in the first quarter of this fiscal since most plants are shut or operating below break-even.
Which players will benefit from low fixed costs this year?
Now, juxtapose the problem of low demand with healthy supply. The sector is staring at a grinding supply pipeline of 90-100 MT over the next 3-5 years. That will necessitate demand growth, if utilisation has to remain respectable. Meanwhile, clinker utilisation is peaking, with a few regions facing clinker availability issues.
Will India turn to clinker imports in the long run?
Liquidity, which is already under pressure, will be affected. A dispersion analysis of 23 firms holding Rs 53,400 crore of debt showcases an interesting take on their financial and liquidity management. Further, cement dealers (retail leg) will face enough and more liquidity challenges.
What would be the extent of impact on each leg of the supply chain?
CRISIL training programme promises to arm you with the granular insights you are looking for. Come and make the most of them.
You will learn about…
Short-term & Long-term trends on demand, supply, pricing, costs
The sector’s resilience to face the current storm
The on the supply chain, especially on the dealers’ front
Evolving role of institutionalisation in the sector
Is east the new south? Regional demand-supply nuances, coupled with inbound-outbound
Raw material issues in new limestone mine auctions and elevated clinker utilisation
The evolving fuel mix, shift towards petcoke, the upcoming domestic petcoke shortage and its impact on profits
Pricing trends at the regional level
The profitability outlook by player category
Emerging trends in the sector such as coastal packaging units, clinker imports, cement exports, rising cement blending
Consolidation among players
Credit risks associated with the sector and the impact of consolidation on sector dynamics and impact of consolidation on sector dynamics
