The cement industry is seeking an anti-dumping duty on Iranian cement coming into Pakistan which is cheap and low quality. This is flummoxing because local demand has not seen a dull day since we kicked off FY18 and continues to go up. The cement coming into Baluchistan from Iran seems hardly substantial (more on that later in this column). But what’s incontestable is the growing need for cement in an economy hungry for construction, and the local industry being the primary feeder.
According to the association’s data, local dispatches in 7MFY18 grew by 20 percent year on year and in Jan-18; they grew by 10 percent since Dec-17 and by 37 percent since Jan-17. Some would term these growth numbers worthy of all the hype that the sector has created since 2016. Of course, the dichotomous trends that don’t quite work in the favour of the industry stand strong.
Exports are still falling. As expansions come online, prices will slide further down as they have already done in the north which will affect bottom-lines as any expansion cycle tends to do. The latter however was an expected side effect of expansions and over the years, the industry built itself up well to weather this storm. For at least 7-8 top to mid-tier firms, margins stood between 40-48 percent during FY16. That’s preparation.
Demand in the north despite harsher winter weather resulted in a growth of 21 percent in 7MFY18 though demand during Nov-17 and Dec-17 did slow down. Meanwhile, the infrastructure development is in full swing bolstered by PSDP funds.
Back in Dec-17, when a slight up tick came in exports to Afghanistan, some were calling it a turn-around but as this column said even then, this was not a revival in exports to that market for several reasons. True to cue, exports to Afghanistan fell by 14 percent between Dec-17 and Jan-18 even as exports to other markets showed some rally.
Afghanistan has become a tricky market for Pakistan even though for years, Pakistan was one of the prominent cement suppliers as the country overhauled its infrastructure. But since Iran had its sanctions lifted, the country has found a sweet spot in Afghanistan, and other nearby countries with its affordable variety of cement, displacing much of the demand carefully curated by Pakistani cement suppliers. The country is also seeing interest from other Central Asian players who want to enter the market by setting up manufacturing plants.
Exports to other countries including India have been going up month after month since Nov-17, but combined 7MFY18 to India fell by 10 percent year-on-year and by 37 percent to other destinations. India was always going to be a portion of a small market for locations closer to Pakistan than the parts of India where cement plants are situated. This allowed Pakistan to sell at prices lower than Indian cement. India is in expansion mode and far-flung areas will be on its radar so Pakistan may not find a lot of market access going forward.
Other export destinations again have either a reduced construction demand, have become more competitive with other cheaper variety coming from elsewhere, or have non-tariff measures imposed on Pakistani cement. These sobering trends do not paint a pretty picture. (More on exports: “Cement exports and geostrategic failures”, Nov 21, 2017).
Whereas exports will remain a prominent threat, some of the expansions coming through may not see light of the day either. The Punjab government is whittling a revised policy for environmental protection and safety of communities by ensuring local industries do not misuse the resources available to them and harm their surroundings.
This comes after the suo moto case filed with the Supreme Court that highlighted that cement factories had depleted the water table at the Katas Raj Temple by consuming more water than they should have drying up the temple’s pond and affecting local settlements living nearby. (Read “Cement in chains”, Jan 23, 2018).
This is likely to delay some of the expansions in the north, or push cement manufacturers to look for alternative locations. As most of the industry is in the north, it also sets the tone that the industry will get a stricter regulatory treatment in the future.
There are no easy paths for cement industry now, despite the wave of local demand.
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