COVID-19 has significantly impacted the working of building material suppliers, creating demand fluctuations and restrictions on key logistics movement. As January – March accounts for close to 30-40% of construction revenue, major delays and extended lockdown announcements have shifted the demand for bulk orders of building materials.
Digital procurement has emerged as a viable long-term strategy during this period to streamline the purchase and selling of construction materials. Buyers can transparently access a wide range of materials categories while gaining real-time insights on all orders. Construction material suppliers are also gaining access to a wider pool of construction buyers and engaging with them directly to fulfil their project requirements.
As we move towards easing of lockdown guidelines, construction work is scheduled to resume in the coming months. This includes infrastructure development, residential work, commercial projects, etc. Demand for key building materials such as cement, ready-mix concrete, thermo-mechanically treated (TMT) steel, tiles, and pipes is set to rise as both ongoing and new developments initiate progress.
The impact of COVID-19 on cement and ready-mix concrete
The cement industry has witnessed demand declines during this period, with expected slowing down of close to 25% this fiscal year. With the complete halting of ongoing and new project development, cement suppliers faced several difficulties in reaching potential buyers for their products.
To address these challenges, manufacturers had earlier increased cement prices by close to 19-20 % during May with prices subsequently declining 1% m-o-m in June-July. Several factors such as monsoons arrival, labour availability, profitability/margins, and region-based easing contributed to the pricing and demand fluctuations during this period.
As guidelines ease in key regions, rural/affordable housing & infrastructure will emerge as critical demand drivers for cement products. Housing (including low-cost & affordable housing) accounts for close to 65% of cement consumption in India and is set to drive cement demand along with infrastructure (accounting for close to 20%). Key government initiatives, especially ongoing projects, will increase the demand for cement in the coming quarters.
The demand for ready-mix concrete (RMC) declined during this period as well, with manufacturers slowing production to control costs across their portfolio. One of the leading ready-mix concrete manufacturers experienced a demand decline of close to 80% in Q2 June 2020 compared to the period last year.
The lack of availability of labour had also significantly impacted the demand for ready-mix-concrete during this period.. With supply chains opening in key regions, sellers are revamping existing logistics models to ensure timely arrival of RMC on-site where construction work has initiated. This will have a direct impact on the overall RMC demand, which will boost production and help construction material suppliers in the segment rebound faster to pre-COVID 19 levels.
Steel suppliers exporting for growth
Steel production has been scaled down during the lockdown period, reaching 50-60% of capacity in some cases. Manufacturers are focusing on exporting steel products (close to 50% of volume for companies like JSW) for increased growth, while domestically India is still opening lockdown restrictions in key regions.
With infrastructure and real estate projects initiating in the coming months, the demand for TMT, structural steel, and other steel products will increase. SAIL, a leading TMT manufacturer, experienced sales volumes growth of 50% in July 2020 over July 2019. Rebounding demand for steel products coupled with strategic marketing efforts have enhanced volume growth as ongoing projects resume development.
Steel prices for core steel products will experience fluctuation as production increases post lockdown easing, and demand slowly rises. While HRC and rebar prices were down 3% and 4% month-on-month in June, the coming quarters will see more market-friendly pricing for core products. Small and medium-scale manufacturers of TMT and steel products will have to focus on key demand areas to rebound from liquidity challenges due to the nationwide slowdown.
Across regions, sellers are tackling profitability, labour management, and materials availability challenges as they continue engaging with developers. Also, with overall construction costs rising by 10-20%, construction firms are looking for reliable suppliers that can provide cost-effective yet high-quality steel products to facilitate timely project completion.
Tiles, pipes, sanitaryware, etc. experiencing decreased demand
A significant decrease in new project work, renovation, and commercial developments directly impacted the tiles, sanitaryware, pipes, and adhesives markets. Revenue across tiles manufacturers decreased during this period, with one of the leading manufacturers experiencing close to 60% revenue decline.
Key areas of focus for these suppliers are the affordable and mid-income housing markets, where the demand for pipes and adhesives is set to help the segment rebound faster. These construction materials are also instrumental in completing ongoing projects, which will help boost their demand in the coming months. Additionally, the replacement and need-based fittings & installations demand markets should help sustain these segments in the near term as well.
Wood panels, ceramic tiles and sanitaryware suppliers are also prioritizing exports and offering dynamic pricing strategies. Morbi’s ceramic cluster (for tiles, sanitaryware, etc.) is leading the way in exports, with close to 25-30% of its production going to 170 countries for greater growth opportunities to counter slower domestic demand. Building material suppliers within these categories will benefit significantly from listing their portfolio online, to reach a wide pool of real estate and infrastructure buyers.
Key areas for potential growth
For building material suppliers, there are several key areas where growth opportunities will arise. With manufacturers expecting to return to normal capacity levels in the coming quarters, building material suppliers will be able to meet domestic demand in a highly agile manner. A critical area of growth will be in the infrastructure domain.
Infrastructure projects, including public works and health services developments, will see a significant push in the coming quarters. While there have been key delays in infrastructure development during the lockdown period, Government is looking to open new sectors to private participation to meet its INR 111 lakh crore investment goal for infrastructure by FY25. Key areas such as railways, solar plants, expressways, airports, smart cities, and telecom will see greater demand for construction materials over the next few quarters.
Ongoing construction projects will also see a greater push towards completion so that developers can market these properties to prospective buyers. Key housing markets, such as Mumbai, Bangalore, and Delhi, have witnessed close to 50% of pre-COVID inquiries levels indicating a strong rebounding in the sector. With consumer demand rising and lockdown easing in key areas, developers will initiate work on ongoing developments to meet rebounding demand.
This will also boost demand in key materials categories such as tiles, sanitary ware, etc. Commercial real estate will also receive greater investment as it provides greater rental yield compared to residential properties. This will have a direct impact on scale-driven commercial construction projects driving greater demand for heavy-grade TMT steel, concrete, AAC blocks, etc.
Building material suppliers in India are reviewing key growth areas within domestic and international markets to satisfy demand and maintain liquidity through this period. While capacity, availability of labour & resources, and demand volumes have posed a significant challenge, suppliers are looking towards infrastructure, affordable housing, and ongoing projects for growth.
Building material suppliers in India are also tackling these COVID-19 related challenges through innovative offerings and the use of digital technologies. Suppliers are looking to digital solutions such as online procurement platforms for boosting profitability and optimizing marketing outreach. They are also leveraging digital construction material platforms for scale-driven procurement fulfillment and to maximize the utilization of their materials portfolio.