Life and Times after the Great Lockdown
According to a study by Global Cement Review, the global cement demand is expected to contract over the next five years due to coronavirus impact. They are of the view that "the confluence of not one but two black swan events including the Covid-19 pandemic and the crude oil prices have created a global economic scenario that has now been compared to the Great-Depression of the 1930s." But cement being more a local business than global, we may ignore this bad news for the time being and focus on the emerging situation in India.
First we take a look at the actual data, and then the futurology. The core sector numbers for March 2020 report a degrowth of 25 per cent in cement despatches, which makes sense since the last week was a washout as the lockdown was announced. Believe me, the last week of the last month of our financial year is always very important for cement despatch numbers. Extrapolating from this impact, and considering that some plants resumed operations and despatches after April 20, and also assuming that lockdown was to be lifted in early May, etc., ICRA expected that cement demand in FY21 will contract by 10 to 12 per cent. This, however, seems to be an optimistic prediction today, and at the other end of the spectrum are some cement industry watchers who swear by a projected 30 to 40 per cent drop. In the middle is the report by CRISIL, which forecasts a drop of 20 to 25 per cent this fiscal, which seems credible to me.
Clearly, there are challenges ahead. On the manufacturing end, we may like to wait and watch how demand shapes up, before clinkering plants will be started up on full stream. Cement plant managements will also be wary of incoming and outgoing logistics, as also manning of labour-intensive activities like wagon/truck loading. In the market, sustainability of demand will be critically observed, particularly with the imminent onset of monsoon in June, and suspected non availability of construction workers who would have gone back home. Demand trend of commercial spaces will also be under scrutiny if work from home becomes a new normal, which might, in turn affect cement demand. So, there are a large number of issues connected with the epidemic crisis, which are relative unknowns, and will likely impact cement demand going forward.
Even the biggest of experts will avoid making predictions at such extraordinary times. However, things will become clearer in June as the lockdown lifts, and our economy wakes up slowly from its slumber.