According to rating agency ICRA, the mining and construction equipment (MCE) is likely to suffer a volume decline of over 20% in the current CY (Calendar Year). The fall in volume is expected primarily due to severe loss in sales in the months of April and May and an overall weakness in the economy.
During Q1 CY2020, as per an ICRA note, the industry has reported an over 23 percent decline in the volume, with 50% volumes falling in the March ’20. And, the same continued to contract in the months of April and May, until reporting a surprising pick-up in June 20’.
The vital loss in sales in the months of April and May can be attributed directly to the coronavirus crisis, which has weakened the overall economy of the world. As per the ICRA note, the industry reported an over 23% volume decline during Q1 CY2020 (50% fail in the month of March). While the same continued in the months following April and May, until reporting an abrupt pick-up on 20th of June.
Pavethra Ponniah, Vice President and Sector Head, ICRA stated, “The MCE industry witnessed some demand recovery in June 2020 after a prolonged downturn, driven mainly by rural demand for construction equipment (CE). It was found that rural demand has been up with vehicle utilization levels and had been trending up since May 2020 led by agriculture, irrigation, canal clearing and mulching activities. However, while the revival during the month of June is no doubt a positive sign, it is in no way conclusive; the same has to be sustainable in the near to medium term and much will be contingent on the underlying economy and headroom for infrastructural spend.”
ICRA note has also said that MCE demand is strongly correlated to economic activity and government/private investments across infrastructures and other long-term fixed assets.
WIth the onset of lockdown, GDP growth has slid to a 44-quarter low of 3.1% in Q4 FY2020. If we talk about domestic cement production and steel consumption, it has also witnessed de-growth at -5% and -7% respectively. In Q4 FY2020, the contraction in GFCF (Gross Fixed Capital Formation) in the economy is getting worse day by day towards a series low of 6.5%.
Furthermore, ICRA has said that the series of lockdowns and climbing infections which the country has been witnessing with no let-up in the Covid-19 outbreak, recovery will be surely delayed. Hence, it will create significant negative biases towards the current forecasts.
The vital loss in sales in the months of April and May can be attributed directly to the coronavirus crisis, which has weakened the overall economy of the world. As per the ICRA note, the industry reported an over 23% volume decline during Q1 CY2020 (50% fail in the month of March). While the same continued in the months following April and May, until reporting an abrupt pick-up on 20th of June.
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