The cement sector registered a cumulative growth of 45 percent in the month of July 2017 compared to the corresponding month last year; with domestic consumption increasing by a phenomenal 55 percent and exports by 2.28 percent. The turnaround, after a poor performance in June 2017, took the industry by surprise and the sharp increase in dispatches in July 2017 revived hopes for the sector. The dispatches were achieved despite political disturbances and unprecedented rains throughout the country which depicts the maturity of the construction sector of the country.
Capacity utilization was high at 86.46 percent. It is necessary to mention that the annual cement dispatch capacity of the industry has increased to 46.94 million tons. Local dispatches from units based in the Northern region of the country were 2.423 million tons while their export dispatches were 0.338 million tons in July 2017 as opposed to 1.516 million tons local and 0.306 million tons export dispatches in July 2016.
South based mills also recorded a growth in local dispatches which increased from 0.352 million tons in July 2016 to 0.483 million tons in July 2017 whereas, exports took a hit going down to 0.138 million tons from 0.159 million tons in July 2016.
Exports to Afghanistan increased by 40.25 percent from 0.15 million tons in July last year to 0.21 million tons in July 2017. However, this major increase was offset by a decline of 11.61 percent and 18.95 percent to exports in India and other countries by the sea which stood at 0.122 and 0.144 million tons respectively in July 2017, down from 0.138 million tons and 0.178 million tons in July last year.
The dispatch figures for July are most encouraging. By dispatching 3.382 million tons of cement in July 2017, the industry has established a record for this month. Never before, the sector had crossed the dispatch limit of 3 million tons in the month of July.
NO MATCH OF PAKISTAN CEMENT
The cement industry is performing in hard regulatory environment and is only surviving because it has developed its technology that has provided it the strength to take any challenge head on. Pakistan quality of cement is the best in the region and efficiency is also the best. No cement could compete with Pakistani cement if imported at the real and fair value after paying all government levies.
Weak border controls and slack customs vigilance allow entry of cement from across borders at unfair valuations hurting the local cement industry.
The government should lower excise duty on the sector to further boost dispatches. In the same way, the import duty on coal imported by the sector should be brought at par with other sectors.
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, Pakistan 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 substantially increased because of the increase in local capacity and production in these countries and the focus of governments on boasting domestic capabilities. Iraq imposed a ban on imports from Iran that was notably exporting large quantities of cheap cement to the country. 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. As 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 world’s 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 Pakistan’s cement with 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 ago according 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 Pakistan’s exports to Afghanistan might not get affected as much already 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 nearness 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 Balochistan.
The third biggest market for Pakistan has slowly 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. Exports of cement from Pakistan to India have registered a growth of 79.34 percent during 7 months of the current fiscal year – July 2016 to January 2017 – but dispatches to Afghanistan suffered by 10.88 percent. Even though India is the second largest producer of cement in the world and is seeing a major infrastructure demand overhaul. There are certain markets Amritsar, Mumbai where Pakistani exports have landed because they are 10 percent cheaper than those produced by domestic companies’ price differential is about Rs20.
The country’s 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, Pakistan’s industry capacity is merely 9 percent of India’s. 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 Pakistan’s exports. Pakistan, China and India have historically been the major exporters of cement to South Africa with Pakistan being the top source. 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. Local players are not 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 help one to grow and keep one on its toes. They allow manufacturers to remain updated in processes, technology and quality and increase 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.