And so the opposing growth trends continue as we wrap up the first half of the fiscal year. The cement dispatch numbers for 6MFY18 were announced by the All Pakistan Cement Manufacturers’ Association (APCMA), indicating a stronger than ever demand for cement in domestic markets, as exports decline. True, we are at 95 percent capacity utilisation so it is possible that cement manufacturers are prioritising local markets over foreign markets where they have to take a price cut, but this column has been following the journey of declining exports since FY16. The picture is not pretty.
In 6MFY18, growth in sales stood at 14 percent, year-on-year, with dispatches to local markets growing by 20 percent and exports fall by 17 percent. The local markets have been highly receptive during the period even if winter slowed down dispatches in Nov and Dec. The infrastructure development is in full swing with disbursements of PSDP funds at their peak.
The fall in exports come with a slight up tick (4%) in exports to Afghanistan. However, as this column has said earlier, this is not a revival in exports for a number of reasons. There is no way the demand in Afghanistan is going up by a lot even as development is trudging alone in that economy.
Much of the existing demand that was being catered to by Pakistan was displaced and taken over by the mammoth influx of cheap Iranian cement. Meanwhile, the country is also seeing interest from Central Asian players who want to enter the market by setting up manufacturing plants.
Shrinking exports in other markets are a function of reduced demand and certain non-tariff measures imposed on Pakistani cement. We talked about sobering trends in exports in a series of columns earlier, which readers can revisit (“Cement exports and geostrategic failures”, published on Nov 21, 2017).
But let’s even forget about declining exports for now, because the cement sector has a much bigger fish to fry. The industry in Punjab is now facing a series of regulations, including a potential restriction on new cement plants.
The news of regulation comes after a suo moto case was filed with the Supreme Court. It was highlighted that the Katas Raj Temple located in the salt range of Kallar Kahar had dried up because the cement factories in the area were using more ground water than they were allowed, causing the water table to deplete. This has affected not only the temple but the Hindu settlements in the area as well. Cement companies were ordered to refill the ponds immediately but the matter is still not closed.
On the relatively positive news front, there are two expansions that have already come online. The latest addition to the capacity comes from Attock Cement, which adds 1.2 million tons of cement with its new facility located in Hub, Balochistan.
The next in line is DG Khan Cement, which also has its new production line in the southern zone. Expansions in the north however may find pause as the Punjab government tackles the environmental and regulatory issues. We go into greater detail about what the regulations entail and what they mean for the industry in this column next time.
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