The cement industry is chugging forward into a bonanza of historic high dispatches, gross margins and profits, in spite of the sharp fall in exports to its key markets such as Afghanistan and South Africa.
To review: Pakistan started exporting cement in 2002; with exports going from one percent of total dispatches to 35 percent in 2009, and coming down thereafter. In 2015, Pakistans export share fell to 20 percent of all sales and fell to 15 percent in 2016 despite Pakistan finding access to some African markets in recent years.
At its peak years before 2010, Iraq, Qatar and UAE were major markets but exports to these countries have significantly dropped partly because of the increase in local capacity and production in these countries and the focus of governments on boasting domestic capabilities. Most recently, Iraq even imposed a ban on imports from Iran that was notably exporting large quantities of cheap cement to the country.
The Iran factor should be mentioned here first. Iran was under international sanctions that had strangled the economy over the past decade. In mid-2015, the Iran deal was signed with the six world powers. Per the agreement, Iran would have to limit its nuclear activity in exchange for lifting of the 12-year old economic sanctions. Iran is the worlds fourth largest cement manufacturer with a capacity of 80 million tons producing 66 million tons. Since sanctions were lifted, Iran has been accused of flooding proximate markets such as Afghanistan and Central Asia with cheap cement that has hurt traditional exporters in the process.
Afghanistan has been the biggest importer of Pakistans cementwith cement exports to Afghanistan reaching 52.2 percent of all of Pakistanis cement exports in 2013, but since last year this share has come down to 42 percent. Afghanistan is still the largest destination but volumetric sales have plummeted from a few years agoaccording to data retrieved from All Pakistan Cement Manufacturers Association (APCMA), they nearly halved between 2013 and 2016.
When the news of the Iran deal hit, local analysts here thought Pakistans exports to Afghanistan might not get affected as muchalready exports had dwindled due to a slowdown in activity in Afghanistan but more because it was expected that Iran would seek heavy investments in infrastructure and development once it came out of isolation and would utilize the cement it produced locally. But such work has not gained that fast a momentum, and the country is exporting more than 25 percent of its cement to international markets.
Because of its proximity to the markets, it is targeting and the lower price advantage, Iranian cement is also being smuggled into Afghanistan aside from being imported officially and some estimates here at home suggest some 1-2 percent is being smuggled into Pakistan through Baluchistan also.
The third biggest market for Pakistan has slowly (and surprisingly) become India and exports through the Wagah-Attari border have persevered despite the frequent skirmishes between the two countries and increasing tensions at the border. Even though India is the second largest producer of cement in the world and is seeing a major infrastructure demand overhaul. The countrys cement capacity is expected to go up from 395 million tons to 421 million tons by the end of 2017. As a point of comparison, Pakistans industry capacity is merely 9 percent of Indias.
Even so, there are certain markets (Amritsar, Mumbai) where Pakistani exports have landed because they are 10 percent cheaper than those produced by domestic companiesprice differential is about Rs20. This is the reason why even though Pakistani exports are a very small share in total consumption of cement in India, they will continue to find a stable market.
South Africa was also a major market for Pakistans exports. In fact, Pakistan, China and India has historically been the major exporters of cement to South Africa with Pakistan being the top source. But since 2014, the country has cut down on its imports in part because of the slowdown in the construction sector. Local cement manufacturers in South Africa had also found it difficult to survive the competition from cheaper cement from Pakistan and China. As a result, South Africas International Trade Administration Commission (ITAC) slapped an anti-dumping duty on different Pakistani cement manufacturers ranging from 14 percent to 77 percent in December 2015, which is still operational.
Local players arent so worried about the decline in exports because of the construction boom in Pakistan that they hope to see in the next few years and the higher margin they get for local sales, but exports are important. In any case, Pakistan should be able to maintain a 15-20 percent share in total dispatches for its exports and not let it decline any further.
Exports helps one to grow and keeps one on its toes. They allow manufacturers to remain updated in processes, technology and quality and, enhances competitiveness. Pakistan should divert its focus toward markets such as Sri Lanka, Central Asia, gulf nations and other African countries to maintain a healthy share in the global market.
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