Cement dumping in South Africa

Aside from implications of the current political impasse in the country, news from the international front is seemingly not very encouraging for Pakistan’s cement sector. Recently, the International Trade Administration Commission of South Africa accepted an application by South African cement manufacturers, which alleges that Portland cement imported from Pakistan is being dumped on the South African Customs Union (SACU) market.
According to the original notice on the Commission’s website, ‘The Applicant submitted sufficient evidence and established a prima facie case to enable the Commission to arrive at a reasonable conclusion that an investigation should be initiated on the basis of dumping, material injury and/or threat of material injury and causality.’ The dumping margin for Pakistan is noted to be 48 percent.
Cement exports from Pakistan have already been under duress, while the sector is also undergoing an expansionary wave. Prospects of a price-war have resurfaced in the sector, in case a duty is imposed in South Africa (a leading destination for cement exports via sea), which could in turn lead to increase in supply in Pakistan. Earlier, concerns of a price-war ensuing from expansion had been rather modest (see BR Research column Two Cheers for Cherat, dated August 6, 2014).
According to Sajjad Hussain, Analyst at BMA Capital, given potential lack of export avenues, leading exporters may want to substitute the loss of export volumes by capturing the local market. Given current demand estimates, there could be excess supply, leading to concerns about a price-war, he notes. One of the leading exporters to South Africa is Lucky Cement (LUCK), for whom every 10 percent of a decline in exports to South Africa could bring down earnings by one percent.
In contrast, Ali Amin, Research Analyst at KASB Securities, suggests that ‘the market has overplayed the risk of anti-dumping duty on LUCK’s exports’. More importantly, South African manufacturers are at a comparative disadvantage, whereby production inefficiencies exist owing to older plants; and conversion and transportation costs are higher. Hence, PPC, one of the leading manufacturers in South Africa, charges an 18 percent higher ex-factory price as compared to the price charged by LUCK. That explains why protection is being actively sought by local manufacturers against imports from Pakistan, Vietnam and India.
Amin also posits that given the sharp difference between the retail price of Pakistani cement and that offered by local manufacturers in South Africa, there would have to be a 38 percent import duty to bring the prices at par with each other, which is rather high. Further, local manufacturers do not enjoy a healthy relationship with the government, especially in the backdrop of being involved in price collusion a few years back.
While the decision on the dumping allegation in South Africa would take its time, the political turmoil back home may have greater implications for the cement sector in Pakistan, given the current government’s focus on infrastructure development.