Construction activities face hurdles as cement prices shoot up exorbitantly

Although the government has relaxed the lockdown for construction activities, contractors are reportedly finding it difficult to commence construction on sites because of logistic issues in terms of supply of building materials like cement, steel, among others.

Moreover, there has been an exorbitant increase in cement prices, which has also subdued construction activities at various sites.

While the price of cement stood at an average of about Rs 290-300 a bag three months ago, the price for each bag has now been reported to cross Rs 450 in certain parts of the country, especially the South.

Cement prices in India rose 3 per cent Q-o-Q from January-March, after remaining subdued for the last few months. And, prices are expected to remain high due to the current operational challenges, shortage of supply and lower production levels.

This unprecedented hike in cement prices has posed to be a major concern for construction companies.

The Coronavirus pandemic has had an impact on the demand for cement in a big way. Cement companies have reportedly suffered huge losses and cement transportation has been affected in a major way due to the lockdown announcement.

Considering that March to June is the golden period of construction with activities in full swing during these months, cement manufacturers had earlier expected a growth in consumption to the tune of 6-7 per cent. Notably, the six months from January to June account for about 60 per cent of the total cement consumption in the country. With construction activity coming to a standstill over the past one and a half months, this growth has largely been impacted.

Moreover, the monsoon season soon to be followed will further hinder construction activities, thereby impacting the demand for cement. What’s more, logistics remains a big challenge, and so also transportation in terms of drivers available.

Amid all this, it is known that cement companies have asked dealers to increase cement prices to cover up for the loss faced during the lockdown.

Cement prices in the medium term in most markets is expected to be in the range of Rs 320-375 per bag (of 50 kg), as reported. As manufacturers may keep their production volumes low even after the lockdown is lifted, prices are expected to remain firm in the near term as demand for cement may remain weak over the coming few months. A few companies across the country have managed to keep prices resilient by operating at lower capacity. Companies such as JK Lakshmi Cement and JK Cement have started operations at Gujarat and Karnataka, as reports indicate, while UltraTech, Ambuja Cements and ACC are expected to resume operations in the next few days.

Commenting on the spike in cement prices, said Sandeep Garg, Managing Director & CEO, Welspun Enterprises, “It is a matter of the supply chain. There is a demand and supply gap. It is a matter of time. We will have to wait and see regarding the cement prices.” Garg was also a panelist for CW’s webinar on Roads to Recovery.  Meanwhile, cement volume sales may witness a decline of about 25-30 per cent this fiscal due to the lockdown. While cement units have been allowed to start functioning from April 20 onwards, a recovery in the near term may not be expected due to demand and other concerns such as logistics, labour shortage, among others.

“In our baseline scenario, cement demand in India would contract by an unprecedented 10-15 per cent this fiscal. Extended vulnerability will deepen the damage for the sector to 20-25 per cent,” said market research firm CRISIL in its April report ‘Cement Cracks’.