While the Competition Commission of Pakistan (CCP) is on a trail to investigate anti-competitive activities by cement manufacturers; the industry is experiencing enduring heights in demand. And despite the dark cloud of the former—not that this is the first time the CCP has launched an inquiry—the good news keep coming. A key export destination South Africa will soon open up imports from Pakistan as the anti-dumping duty levied on Pakistani cement five years ago is set to expire on Dec-15.
This is huge. Exports are already running strong for cement makers (up 24% in 5MFY21) despite covid challenges and the near shut-down of trade with India where a small share of cement exports found home every year. The intermediate clinker is dominating the export share at the moment (over 40% of cement exports are clinker) while total cement (and clinker) exports are pinching about 20 percent of the volumetric cement sold. Whether that share would rise or not is neither a concern, nor is it important.
The structure of the sales mix matters from the perspective of margins (local sales give a better margin versus exports while cement fetches better price in export markets than clinker)—what important is the total size of the market accessible for cement makers is expanding.
On the domestic front, already talked about factors such as government’s support to the construction and housing industry in the form of tax waivers, subsidies, relaxed regulatory control, accessibility of finance; plus dedicated spending on infrastructure and development and dam construction are firmly establishing roots for a growing demand for the next few years.
On the exports front, more markets are opening up. After all, the idea of the Pakistani government to accelerate construction activity in order to generate quick industrial and employment demand is not original. The industry is a huge job creator, connecting to and feeding into a large number of small and large manufacturing industries. Many countries are on that bandwagon grabbing the low-hanging fruit to spur economic growth.
South Africa was one of Pakistan’s top markets for cement, exporting more than a half a billion-dollar worth of the commodity before the anti-dumping duty was imposed. With South African government resolved to spend on the construction industry with large infrastructure projects already kicking off, Pakistani cement makers have a huge opportunity on their hands. They understand the South African market intimately having already supplied to it and will take no time to revive their presence in that market.
Once South Africa opens up, Pakistani manufacturers will be able to sell a higher priced cement (as opposed to clinker) and get better margins on exports, granted they want to continue exporting. After all, as domestic demand grows—even if CCP slaps cement companies with a penalty—local supply will be best-priced and easiest to tap for cement makers. But it looks like, they will not have to make any trade-offs since they are already preparing to enter the next phase of expansions in order to absorb the rising demand both home and abroad.