INDIA IMPOSES IMPORT DUTY ON PAKISTANI CEMENT

SYED FAZL-E-HAIDER
Jan 19 - 25, 2009

Cement trade falls first victim to the mounting tension between India and Pakistan. India has taken steps to discourage the import of Pakistani cement in the aftermath of Mumbai terrorist attack in November. Cement export to India has come to a complete halt after the Indian government has imposed 12 percent duty on the import of cement from Pakistan, which has been playing a pivotal role to cover the demand gap of cement in India. There is a great demand of Pakistani cement in India, but the imposition of import duty would make difficult the access of Pakistani cement to Indian markets.

There is a serious cement shortage in India, which has provided a huge advantage to Pakistani cement companies to export in bulk with large buying orders in hands.

Following the recent terror attacks in Mumbai, the Indian cement industry was sensing an opportunity to demand a curb on Pakistan cement imports. Indian cement industry approached the Indian government to review its trade talks with Pakistan with respect to cement, which could probably lead to a decline in Pakistan cement exports to India.

During the last three years, the cement manufacturing has been buoyant in Pakistan and the industry has shown tremendous growth in recent years. Owing to the increasing local and export demand due to rising construction activities and regional cement shortages, Pakistani cement sales jumped 24 per cent in the first half of fiscal year 2007-08 as compared to the last fiscal year 2006-07. Exports of cement increased 149 per cent to 2.99 million tons from the 1.20 million tons shipped a year earlier. The total sales reached 13.9 million tons for the six months to December, compared with 11.18 million tons in the same period of 2006. The cement sales for December 2007 fell 9.5 per cent to 1.9 million tons as compared to the same month in 2006 due to the Eid holidays and the political turmoil in the country following the assassination of Benazir Bhutto. Owing to the shortage of cement in the region and rising demand from India, Pakistani cement manufacturers were poised to benefit from the current cement boom in terms of high export price. Under a recent deal, Islamabad had committed to export about 0.1 million tons cement to India on monthly basis.

Pakistan is the most feasible cement exporting country for India, as it is most competitive in the form of transportation charges as compared to other regional countries, which usually constitute of 15 percent of the imported price of cement. There is also no big gap in the cement prices of Pakistan and India. China is the biggest rival to Pakistan in the regional markets. The quality of Pakistan's cement is however far better than China and it has already exported around 3 million tons of cement to India and North African countries. Pakistan produces four types of cements and the raw material- gypsum, limestone, clay/shale- used for cement manufacturing is found in abundance in the country.

Local cement companies had already completed additional capacities of domestic cement manufacturers to reap the possible benefits from India's rising cement demand. The main Pakistani cement manufacturers including Bestway Cement, Lucky Cement, and D G Khan Cement set up new plants for further expanding their production capacities. Bestway Cement plans to expand its capacity by 4,000 tons per day, Lucky Cement 6,000 tons per day and D G Khan, the first exporter of cement to India, is also working on similar plans. Maple Leaf Cement is already running on full capacity since July 2007.

On cumulative basis, cement dispatches during the first five months of FY09 (Jul-Nov 2008) is estimated to depict 2 per cent nominal increase at 12.3 million tons as compared to 12 million tons during the same period of last year. The rise in cumulative cement dispatches is solely attributable to rising export volumes as domestic demand has remained depressed. Increasing regional cement demand from countries fuelled the export demand growth during the period. Utilization level dropped to 80 per cent of the capacity In November 2008, cement plants of the country operated at 80 per cent capacity utilization level as compared to 83 per cent in the same month of last year. While, overall utilization levels for Jul-Nov 2008 recorded at 79 per cent as against 78 per cent in the corresponding period of previous year.

India has great demand for cement and the Pakistani industry has the capacity to meet the demand. Though India is the non-traditional cement market, yet a number of non-tariff barriers (NTB) are hampering Pakistani exporters to export cement to India. Despite all these barriers and problems, the Pakistani exporters, who have already got registration and certification from the Bureau of Indian Standard (BIS), are struggling hard to capture the Indian cement market. Last October, around 0.2 million tons of cement were exported to India. The Pakistan Railways have doubled cement loading capacity to India.

With 75 per cent imports and 25 per cent exports from Pakistan, the bilateral trade balance currently goes in favor of India. The balance may be corrected or improved if Pakistan increases its cement exports to India and captures the market, as India is presently facing acute shortage of cement. The estimated demand/supply gap in India is around 10 million to 12 million tons per annum and the cement demand started to outpace supply.

Before Mumbai attack, the two countries have been engaged in negotiations to devise a comprehensive mechanism for the export of cement. Both the sides had realized the need for improving road transportation facilities for smooth flow of trade. Due to abolished countervailing duty and additional customs duty on cement imports, the Pakistani cement would have become competitive in the huge Indian market. Analysts had calculated that the landed cost of Pakistani cement in India would be cheap. The two countries had agreed to allow trucks to move into each other's border up to half or one km and construct truck terminal facilities. While Pakistan has already developed a truck terminal at Wagha with a capacity to accommodate about 100 truck lorries India is yet to construct the facility on its side at Attari border.

With the imposition of new duties, Pakistani cement has become costlier than the local cement in the Indian market. Pakistan had so far exported 0.8 million tons cement to India and a 200 percent increase in cement export volume was recorded only in the first four months of current fiscal year, according to an estimate.