Demonetisation impact wearing off since Q1 of FY 18: ICRA
Context: Rating agency ICRA on Thursday said that it expected cement demand growth to recover to about 5% during 2017-18 as against a decline of 1.2% in 2016-17, driven by a pick-up in the infrastructure segment, mostly road and irrigation projects and the housing segment. Introduction: Cement prices recovered from February 2017 and reached pre-demonetisation levels in most markets by April 2017. Key points:
- While improvement in the supply-demand scenario in FY 18 is expected to support the cement prices going forward, sustenance of the same is critical, given the rising costs.
- While in the short term, demonetization has had a negative impact on real estate and construction activities and hence on the cement off-take, the impact has started to subside from Q1 FY 18, driven by a pick-up in the infrastructure segment.
- The increased budgetary allocation for the infrastructure sector, which includes roads, railways, metro, irrigation and housing, during FY 18 will directly and indirectly support cement demand.
- Higher rural credit and increased allocation for rural, agricultural and allied sectors, including the demand for rural housing, are significant contributors to the overall cement demand mix.
Drop in production:
- All-India cement production dwindled by 1.2% YoY to 279.8 million MT in FY 17 for the first-time over the last decade.
- Cement volumes declined between November 2016 and March 2017 by 9% when compared to the corresponding previous, following demonetization.
- Cement volume growth has witnessed recovery since March 2017 and reported a growth of 17.5% on MoM basis to 25.2 million MT. Prices too have seen improvement across markets, especially since April 2017.