South Africa, the largest market for Pakistan’s sea exports of cement, has imposed dumping duty ranging from 14.29 percent to 77.15 percent on import of cement from Pakistan to that country. Although the move is bound to make some cement exporters wince, the sector’s performance should maintain course if domestic demand perseveres.
Plants operating in the south region have enjoyed higher growth (6.5%) in recent months, year-on-year, compared to the north region (3.2%). But the higher growth necessitated reliance on exports. Cement firms in the south have sent about 38 percent of their dispatches abroad over the past two years.
Meanwhile the players in the north exported just one of every five bags produced in 10MFY14 and that proportion has fallen further to 16 percent in the current fiscal to-date. Exports to Afghanistan have stymied over the past year and a half, and the north has already adjusted, thanks to domestic demand.
Now that South Africa has slapped dumping duty on Pakistani cement firms, it is time for the south to give a pound of flesh. South African authorities have imposed dumping duty for a provisional period of six months.
Their International Trade Administration Commission (IATC) has slapped the highest rate of 77.15 percent on Bestway Cement. Attock Cement, D. G. Khan Cement face relatively high rates while all others are subject to 62.3 percent. Lucky Cement was lucky to get away with 14.29 percent duty imposition.
The impact on some of the country’s cement manufacturers is undeniable and the government would do well to chip in with support in getting speedy relief for the sector. But don’t expect exports to nosedive or margins to crumble either. Exports to other African markets yield a marginally lower return (price difference of USD5-10/ton) but offer sturdy demand.
Given this alternative demand, there are few signs of southern cement makers slashing domestic prices to drive sales. The south region has posted 6.5 percent growth in total dispatches in 10MFY15, compared to similar period of the previous fiscal. The north’s growth was a shriveled 3.2 percent over the same comparison.
But the cement sector is still sitting on ample excess capacity. While energy woes have been a debilitating factor, most manufacturers are beefing up captive power production. Then the cost of production is also neatly under wraps thanks to soft input prices. The government should be looking to use its upcoming budget announcement as a tool to drive the sector towards higher capacity utilization and hence more building material at cheaper rates; more on that later.