Domestic mining and construction equipment (MCE) sector may face a 20% volume dip in 2020: ICRA
The domestic mining and construction equipment (MCE) sector is likely to see a decline of over 20 per cent in the calendar year (CY) 2020. This is due to loss of sales in April and May, and an overall stagnation in the economy, ICRA which is the domestic credit rating agency. The agency said that it continues to maintain a negative outlook for the domestic mining and construction equipment (MCE) sector based on the prevailing overall weakness in the economy which was caused by the pandemic.
“The MCE industry is expected to suffer a volume decline of over 20 per cent in CY2020, due to two months of lost sales and an overall weakness in the economy,” the rating agency said. After three strong years and industry volume peaking at about 94,000 units, CY2019 saw industry volume fall by 16 per cent, ICRA added.
Due to tight liquidity conditions, delayed payment to contractors and an overall slowdown in government grand on infrastructure activity, domestic mining and construction equipment (MCE) volume has witnessed a sharp contraction since December 2018.
“Partial recovery was visible from December’19 with some relief on payments and government spending, however, the lockdown from March’20 disrupted this growth momentum,” it said in the statement.
As per the rating agency, the industry reported over 23 per cent volume decline during the first quarter of 2020, followed by a 50 per cent decline in March. It continued to contract in April and May too, before reporting a surprising pick-up in June.
The MCE industry witnessed some demand recovery last month after a prolonged downturn, driven mainly by rural demand for construction equipment (CE).
“The contraction in Gross Fixed Capital Formation (GFCF) in the economy has worsened to series low 6.5 per cent in Q4 FY2020. With no let-up in Covid-19 outbreak, climbing infections and localised lockdowns, recovery will be delayed. Thus there exists significant negative bias to current forecasts,” ICRA, the credit rating agency added.