Last month this column predicted that cement exports were soon entering a danger zone. It seems we have reached that stage rather quickly. But first, the good news. The cement sector is holding its own by sustaining a strong local demand. The month of March has recorded the highest sales to date (3.9 million tons) with the sector operating at full capacity.
On the flip end, while cement exports have been falling for quite some time, they could very well get worse. Worse than the levels they stand at right now, already dropping by 15 percent in 9MFY17 year on year. This is the steepest drop in exports yet, and our market intelligence says this is only the start.
To summarize the nine month numbers: the sector recorded a 7 percent year-on-year growth (standing at 30 million tons) bolstered by the strong performance in March. Demand in the month picked up by 15 percent compared to February, despite a 17 percent drop in month-on-month exports.
Local dispatches grew by 11 percent in 9MFY17 year-on-year and by 23 percent in March of 2017 compared to this month last year. That is a stunning feat, closely matching the expectations set forth by industry experts.
Running at maximum capacity, the expansion plans of multiple firms come just right in time. Our own estimate suggest a sure enhancement of nearly 30 million tons to the existing 45 million tons capacity. Meanwhile, we hear KP government has awarded a dozen mining licenses to existing cement manufacturers and some new firms hoping to dip their feet into the proverbial pool of opportunities galore.
These are substantial investments coming into the industry that could potentially change the way the sector operates right now. But exports will remain a problem.
As this column has earlier talked about, Afghanistan, the biggest market for Pakistani cement was usurped by cheaper Iranian cement. The predicted decline in exports to Afghanistan was 10-15 percent but they have fallen by 24 percent in 9MFY17 and by 83 percent in March of 2017 compared to this month last year. On monthly average, exports to Afghanistan are falling by 20 percent year-on-year.
These are not expected to recover since Iran is undergoing expansions, while other neighboring countries such as Tajikistan have reportedly started to export to Afghanistan through its shared border. The country is also reopening a 20 year old plant with a capacity to produce 100 tons per day. This will nominally add to the local capacity which caters to 6 percent of the domestic demand through the country’s only one cement plant.
Other markets report somber trends. Read our analysis on cement over the past few months. Exports to India had been growing and are still witnessing nominal growth but they are unlikely to reach a very high level. Pakistani cement reaches only a select few markets through the shared border where cement from the country is found cheaper than domestic Indian suppliers. Till that price advantage exists (15 percent less), Pakistani cement will find a market. If Indian cement producers move and expand into these niche markets, Pakistan will lose its competitive edge. Expect exports to India to simmer down in coming months, and not nearly retain the levels they were growing during the start of this year (222 percent in July 2017).
One could say there is no stopping the sector now but cement firms must play it smarter, and diversify their risks as they go alone. Exports share has dropped from 15 percent to 12 percent this year compared to the period of FY16; whereas earlier it used to be 35 percent. It is expected that all the expansions will be completely absorbed by the demand that the country will see over the next couple of years but exports help the industry remain competitive. Let’s not lose sight of the long term, as we celebrate the successes of the right-now.
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