Growth in the building materials sector, which was already reeling under the effects of demonetisation, RERA, GST and the NBFC funding crisis, in the last few years, is now struggling to cope with the impact of the COVID-19 pandemic. Following the countrywide lockdown in response to the spread of the pandemic, all manufacturing of building materials came to an abrupt halt. Supply of materials was severely affected as all national and international modes of transport for freight load was stopped for several months.
As a result, those who depended on import of building materials from other states or other countries were caught in a bind. Even otherwise, construction activity had already come to a complete standstill. This was not just a jolt to the entire construction industry but the economy as a whole, to which real estate is a major contributor. The challenges faced by the building material suppliers is unique and critical, something which might take this sector several months to recover from.
What are the particular challenges faced by the building material supplier today? Read on to know:
Most of the construction and building materials are sourced from a company in a particular location. Suppliers of these materials faced a double whammy. On the one hand, a sudden and complete halt in manufacturing activity and resuming of operations in a staggered manner has pushed back output, causing shortage or even worse, unavailability of various building materials. On the other hand, there is lack of options in delivering the existing stock because of shipping constraints at the national and global level.
Failure in containing the pandemic has caused a shift in demand, resulting in preference for local and domestic building materials suppliers, as the original supplier is unable to export to desired locations. This has caused some amount of price fluctuations. In the long term, prices of building materials could go up due to supply chain constraints. As construction firms will try to normalise their operations to get back to business, it is estimated that supply chain disruptions in the face of surge in demand could increase the materials’ prices.
3-Non-discretionary categories may be hit harder
Within the building materials space, we expect the plumbing pipe segment to be relatively less impacted followed by the adhesive segment as they are non-discretionary categories. Other reasons for them to be relatively less impacted are the government’s strong push for affordable housing and demand for mid-income housing projects as well as the ongoing consolidation in the PVC/CPVC pipe segments. On the other hand, demand for categories like wood panel, ceramic tiles and sanitaryware, which are largely classified as discretionary spends, are likely to see a drop due to decline or deferment of renovation/refurbishment activity in the near term.
4-Dip in the supply of cement
Since cement is a primary construction material, it has experienced a considerable dip in demand ever since the announcement of the nationwide lockdown which put brakes on the ongoing real estate and infrastructure projects. While the Government’s permission to restart the cement production on staggered basis would improve supply, its demand is unlikely to catch up until no relief is announced for construction activities. Surge in prices of cement is another shock for the industry in these times of crisis, not only for the small developers but also big builders that are struggling to stay afloat and complete pending projects.
Strategies for suppliers to deal with the current challenges
Building construction firms may not wait to receive shipment from their original suppliers, especially as far as critical building materials are concerned. Therefore, this is the time for material suppliers to start looking for alternate buyers. To avoid supply chain hiccups, both the building material suppliers and building construction firms need to identify their potential buyers and vendors locally.
That said, suppliers may also take the risk to wait it out and find better buyers. Because, even though it is difficult to say now when businesses will be completely normal, whenever they do, there will be a rush to procure supplies. Thus, instead of settling for an abysmally low price now, suppliers may like to watch out for demand to rise back again in the domestic and international constructions market and get a good deal later.