Cement: not turning any pages

Nearly a year into the hype created by the infrastructural and housing demand projections, the cement sector is settling into a pattern of slow but consistent growth, despite the exports share from total shrinking month after month.

Volumetric sales grew by 6 percent year on year clocking at 33.3 million tons; local dispatches by 11 percent; with exports falling by 19 percent in 10MFY17. The dispatches at this point are 92 percent of total capacity of the cement industry which is solid performance.

But exports which propel manufacturers to continuously improve quality, reduce costs and become competitive are the sector’s downfall. Exports plunged by 51 percent in April year on year visibly driven by the continuous drop in exports to Afghanistan which, as this column has talked about at length, is a result of direct competition from much cheaper Iranian cement. Other neighbouring countries have also recently started exporting to Afghanistan which has together nixed Pakistan’s share in that market.

It is unlikely Pakistan will gain back the market share it once had in Afghanistan since Iran is expanding and Afghanistan itself is reopening an old cement plant.

Exports to India had started to gain momentum but since the past few months, they have also fallen in a lull—growing but not as much. This is partly because exports to India were already reaching a very select handful of markets in India, which itself is a cement giant on the way to massively expanding its capacities. Any exports to India are hence contingent on the pricing—as long as they are cheaper for buyers in locations near the border, exports will keep happening. Pakistani cement prices in India are lower than Indian cement by a margin of 15 percent.

The industry hasn’t reached any newer markets. Perhaps manufacturers here will when and if infrastructural demand picks up across the world. As we said in our last column on the subject, the sector’s growth is tethered to local demand, is counting on it and visibly happy with it. Besides, margins on exports are much lower for these manufacturers since they sell at premium prices locally but have to keep prices low to remain competition in export markets.

Running at such high capacity utilization and announcing one after another expansion plans—the tally currently stands at 30 million tons over the next five years—the sector is prepared for whatever curveball the economy throws at it.

The only concern remains is the high construction cost in the country, in absence of freer (lower duty) imports, particularly of cement for greater competition. Ironically, the cement industry is rallying to increase this duty. More on that and quality control in this column tomorrow.

Disappointing as it is to watch exports falling, business is booming for cement companies. But then, business has been booming for a while. The industry is surviving fine without the exports, and will going to do so given local demand, but one must ask, what’s new?