Recent changes in prices, demand and supply situation and governmental intervention into domestic market in UAE and India have effected the scope and demand of Pakistani cement. Further this has caused serious losses to cement companies.
More than 700 containers, carrying Pakistani cement, are stranded at Jabel Ali Port in UAE where importers of the cement are not accepting the shipment documents to remit the payments to Pakistani cement exporters because prices of cement in UAE have come down from 24 AED per bag to 15 AED per bag since UAE government has fixed the price of cement at AED 16 per bag after a meeting with domestic cement manufacturers.
Mohammed Ahmed bin Abdulaziz Alshihhi, Under-secretary of the Ministry of Economy, affirmed recently that cement plants across the country have pledged their commitment to maintaining cement prices at AED 17 per bag. Alshihhi clarified in a press statement that rumours about cement plants increasing prices are untrue, since cement manufacturers had previously committed to fixing their sales price. He also emphasised that appropriate actions will be taken in response to any increase in cement prices by UAE manufacturers.
"UAE cement producers have agreed with the Ministry of Economy to cut their prices by almost six per cent with immediate effect as part of a federal drive to control inflation", the ministry said. The producers agreed to lower their prices for a 50-kilogramme bag to dhs16 from dhs17, and to increase their production by two-thirds to 250,000 bags per day, the ministry said in a statement.
"The signing of the agreement is very timely since, besides controlling the price of cement, it also positively influences different market trends," Ahmed Saif Belhasa, chairman of the UAE contractors association, said in the statement. The ministry has not yet given details about current UAE cement production and the planned increase."
UAE market was flooded with Pakistani cement after UAE government's decision to allow duty free import of cement to lower the rising cement price in UAE. The strong demand for cement in UAE has not only benefited the cement industry but it has also helped shipping industry. A 20-foot container which usually was charged 100-150 dollars has gone up to 850 dollars, just in two months since the cement export had started to UAE in February 2008. Today freight for containers are coming down rapidly as well because cement exports to UAE has halted in view of the new situation.
All the importers have stopped not only ordering new shipments but also they are not even paying for the shipments which have already arrived at Dubai port. According to our survey of Jabel Ali port in UAE, more than 700 containers are lying there with no one caring to proceed in clearance of the cargo. Millions of dollars of Pakistani cement industry are at risk and cement consignments to UAE has been stopped immediately.
The same scenario is happening in Indian market where buyers are refusing to pay for the shipments of Pakistani cement. In one instance an Indian buyer, who had ordered a consignment of 500 metric tonnes of cement, but as the shipment arrived at Mumbai port, the buyer refused to accept the shipment documents, putting more than 30,000 dollars at risk which was recovered by selling the cement to another Indian buyer.
Such practice is becoming common, especially in South Indian region where Tamil Nadu government is aggressively pushing cement manufacturers to lower the price of cement and increase the quantity of cement in domestic market. In India, cement companies are being pressurised by government to stabilise the prices and recently "ACC, which accounts for over one-tenth of the market, had announced its intent to freeze prices for two-three months."
Other cement companies are also presenting their proposals to Indian Government and government's moves are assuring the market a lower - priced cement as according to a senior executive of a southern cement major, "If they (government) give some relief on excise, the reduction will be passed on to the consumers."
Secondly, freight charges from Pakistan to Indian ports have hit the export. A container was available at 70-90 dollars from Karachi to Mumbai in October 2007 when cement export to India was started and now the same is available at 300 dollars.
It is remembered that first shipment of cement was sent to Mumbai on 22nd October 2007 and at that time the freight cost was 3 dollars per tonne for Nheva Sheva port, Mumbai and now it is 1 to 12 dollars per metric tonne. The rapid increase in freight cost has badly affected the export of Pakistani cement because the cement prices in Indian market have not increased accordingly.
Recently, another factor added to the decrease in export where cement shipments are found with lumpy cement due to rains while travelling from cement factory to Indian destinations. Last month a consignment of 10 containers was sent to Cochin port and 7 containers were lumpy upon arrival at the port due to damage caused by the rain.
After the Indian buyers' refusal to accept the shipments, Pakistan cement exporters and manufacturers have adopted a very careful attitude in receiving orders of cement from India and UAE. They only accept new orders on cash payments, instead of letter of credit so that they may not face any risk in payments.