The trend in the cement industry hasn’t changed much. High capacity utilization—above 90 percent— persists on account of rising local demand for cement, despite slowly declining exports. According to the industry’s association, cement sales in 8MFY18 grew by 14 percent year on year and by 10 percent in February year on year. No doubt, there is no rebound in exports as some were predicting. Month after month, exports to Afghanistan are declining while India or other destinations via sea are not offering any reprieve either.
Public development projects are likely to pick up pace as we move out of the winter season. As a result, overall local cement dispatches in 8MFY18 grew by 19 percent. Exports’ share in total dispatches has also dropped to 10 percent during the period against 13 percent and 16 percent the preceding years.
Those expecting a revival in Afghanistan may have to wait long, and even then, Pakistan may not find a greater market access there. The country has become a sweet spot for Iranian cement that is cheap and comes through the border at very low transportation costs.
Pakistani cement cannot compete with Iranian product whether in Afghanistan or anywhere else. Iran has double of Pakistan’s current production capacity in cement with an inability to absorb all of it domestically. The country resorts to dumping the commodity to nearby countries while cement is also smuggled through the porous borders at dirt cheap prices. Other Central Asian players are also entering the Afghan market. Together with Iran, this has seized a chunk of market share that belonged to Pakistani cement.
Certain markets in India were importing cement from Pakistan because they were further away from where cement industries were located and Pakistani cement manufacturers took a price cut to compete with the higher-priced cement. However, with the Indian cement industry expanding, Indian cement prices have also moved south, becoming more affordable for these markets. Evidently, India will always be a slow and small market for Pakistan (More on exports: “Cement exports and geostrategic failures”, Nov 21, 2017).
While abroad Pakistani cement is in a fix, locally it is flourishing. Greater cement needs domestically month after month also allowed the industry in the north to raise prices in February by Rs10 per 50kg bag. The industry intends on bringing subsequent hike to consumer prices, simply because it can.
Retention prices in the north had fallen after Cherat came with its expansion. Companies were also giving discounts to clear extra volume. But capacity utilization in recent months since has reached closer to 100 percent and the expectation is that local demand will continue to soar. With coal prices climbing for quite some time, the sector’s decision to raise prices was not a surprise. It will help improve the falling margins.
Meanwhile, after the latest apex court decision, all expansions in the north have been temporarily halted. (Read: Cement in Chains, Jan 23, 2018). While it has left DG Khan, Pioneer and Mapleleaf Cement in a bit of quagmire, it has ensured that the industry might not reach overcapacity just yet. This allows the sector to raise prices with fear of losing market. Having said that, capacity utilization reached 91 percent in 8MFY18 so if local demand continues to go up unabated, cement manufacturers will inevitably adjust their sales mix, diverting cement from exports to local markets. This all things considered, isn’t the worst case scenario.
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