There was still no reprieve from exports, as the cement industry wrapped up the year 2016 with a drop in total dispatches in Dec from Nov (2.6 percent), but which was still a 3 percent jump from December last year. The sector locked in total dispatches of 19.9 million tons in 1HFY17, a 9 percent increase from this period last fiscal (18.2 million tons), while local dispatches grew by 11 percent between 1HFY17 and 1HFY16 against an average monthly (local) sales of 12 percent since July of 2016. (Read about last months numbers, Cement mills keep on churning! published Dec 15, 2016).
Both in the northern and the southern block, the cumulative half year sales grew significantlyby 10 percent and 16 percent respectively with dips in month-on-month performance of December. Since July, the sector is outperforming from last year; operating at 90 percent or more capacity utilization each month. In November, the sector worked at 99 percent capacity which speaks to the demand in housing and infrastructure that everyone seems to be talking about.
Total exports declined by 0.7 percent in 1HFY17, saved only by the exports to India that Pakistan is finding a greater market since this fiscal year kicked off. Exports to India bounced back from last month. They grew by 99 percent in 1HFY17 against 1HFY16, while they grew by 55 percent in month-on-month performance between Nov and Dec. Despite fears that the worsening political conditions between the two countries may curb trade, Pakistani cement exports to India have not yet hit a ceiling. This is a market to watch out.
On the other hand, exports to Afghanistan declined by 10 percent in half yearly performance and by 38 percent between Nov and Dec. Afghanistan is still the biggest market for Pakistani cement but much of that share has been foregone to cheaper Iranian cement that flooded many markets after sanctions were lifted. Irans overproduction of cement will continue to be a threat.
In fact, local players maintain Iranian cement is being dumped and smuggled into the country through Balochistan. The estimates for smuggled cement vary widelybetween 2,000 tons and 15,000 tons per month. The official reported imports from Iran in 2015 stood at 50,000 tons, which would put monthly imports to about 4,200 tons. The smuggled cement, the manufacturers claim charge about 40 percent less than local cement prices.
If indeed cement is being smuggled, it should be immediately curtailed at the border and the burden of responsibility falls upon border regulation and the relevant government department. If it is being dumped and a case could be made with the National Tariff Commission (NTC) that the dumped cement is hurting the local producers, NTC should slap an anti-dumping duty. But just in numbers, the imported cement is too insignificant a number to hurt the industry.
While local manufacturers argue for a higher import duty from 20 percent, this column contends that there shouldnt be an import duty at all because local players can take a bit of competition given they are operating at such sky-high margins, while the consumer could use lower prices. Since the industry is working at such high capacity already, and planned expansions will come through in the next few years, there is space for imported cement and/or new players.
Meanwhile, some say price of cement has gone up in the last month by 12-20 percent because coal prices went up globally. This only buttresses our argument for no import duty since in that case, consumers will have the choice to shift to imported cement if price of local cement is higher. If imports are indeed cheaper, they will drive overall prices down. (For detailed analysis on it, read Cement: Price promises, published on Jan 5, 2017).
Even so, it is unlikely that such a competitive and efficient sector will get a dent in its market share due to imports. On the expansions front, recent statements from All Pakistan Cement Manufacturers Association (APCMA) point toward an expansion of 26.25 million tons coming through in the next five years though the announced capacity remains 22 million tons. This indicates more announcements may be in the cards.
Given demand for housing and the infrastructural needs in the next few yearswith housing bringing up to 60 percent of the demandthe prospects for the industry are rock solid. Already, we are seeing an average growth of 12 percent in local cement dispatches. With more expansions, possible acquisition of Dewan Cement by a local player, the sector is set to make waves. Perhaps the only thing needed in the sector now is some price advantage for consumers who are building their homes. This will happen only if there is more competition (through imports and ability of new players to enter). Let that be a new year resolutionthe kind everyone knows will remain unaccomplished, but hopes for otherwise.
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