Cement exports rebound

Maintaining an optimum sales mix and diversifying markets globally is crucial for cement businesses. Being exporters, cement firms have an opportunity to play on both prices and volumes—when demand in the domestic market drops, exports can provide a much-needed cushion to retain capacity utilization while as local demand improves, cement companies can choose to only export where price competition is minimal. Evidently, during peak domestic demand of FY16 and FY17, exports share reduced down to as low as 5 percent; compared to the 35 percent during FY11 when domestic demand was floundering.

The past two years have unfolded several new scenarios for cement companies which have shifted the dynamics a little. Since FY16, cement firms have expanded capacities across the board; but demand was not growing expectedly. As capacities grew, prices also reduced as competition in the market picked up steam. This led to companies in both the north and the south zone to explore exporting markets. While it was easier for firms closer to the port to explore markets overseas, for north zone players, reliance on cross-border sales came under threat as India all but closed down business operations with Pakistan by slapping countervailing duties on Pakistani goods. Afghanistan, Sri Lanka and Bangladesh among other small markets were left but which were not too receptive.

On the south side, demand for cement overseas was not picking up either which led companies to sell the lower-priced intermediate clinker to these markets. Whereas that ensured high volumetric growth in sales, prices fetched and margins thereof, were not ideal.

That brings us to present day. The encouraging news is that in Sep, the industry reached its highest sales ever of 5 million tons. This is a great turnaround from only a few months ago when cement mills were out cold due to covid-19 related lockdowns and a pronounced demand slump. It seems now the domestic market is waking up to the new opportunities presenting itself as the economy is being trudged out of darkness with the aid of a comprehensive construction amnesty scheme in addition to government-funded subsidies for housing.

Additionally, exports are bragging a 20 percent share in total sales as overall pie grows. Clinker markets abroad are welcoming and cross-border markets sans India (Afghanistan in particular) are also reviving. If growth persists in both domestic and foreign markets in tandem and rather uncharacteristically, cement companies may think about going into another expansion cycle, granted mega projects including Dam construction, Naya Pakistan Housing, Karachi Transformation Plan and other CPEC and non-CPEC related infrastructure plans fully materialize.