Govt spending pushes cement demand in Q4

Govt spending pushes cement demand in Q4

The demand for cement - a major product used in infrastructure building - is expected to increase in the ongoing quarter. There has been an improvement in demand conditions from November 2019 in most parts of India. "Cement stockists believe that demand improvement has been led by improved government spending after a decline in the first half of the current fiscal," said a report by Emkay. As per core industries data, cement production grew by 5 per cent on-year in January 2020 and we expect the same production growth in February, too, the report added. However, a high base of the last year and some impact on construction activities due to Covid-19 may restrict March 20 volume growth, which may lead to a 4-5 per cent on-year decline in the month, it further added.

The Rs 100 lakh crore spending to give infrastructure push has also played an important role to provide cushion to the weak cement consumption. Finance Minister Nirmala Sitharaman had unveiled Rs 102 lakh crore of infrastructure projects that will be implemented in the next five years as part of the government's spending push in the infrastructure sector.

The increase in demand has also brought an uptick in cement prices. It is expected that average trade prices pan India are set to improve 1.5 percent on-quarter in Q4. Also, due to lower pet coke prices, the sales volume and lower operating expenditure may benefit the companies in the current quarter. Emkay has estimated that the companies can earn Rs 105 per tonne more than the previous quarter. Meanwhile, the demand for cement in India had been benign in recent months due to weak economic activity. Also, the industry is producing far less than its installed capacity.

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