[dropcap]C[/dropcap]ement production in Pakistan averaged 2,219.01 of tons from 2003 until 2016, reaching an all-time high of 3,469 of tons in November 2016 and a record low of 864 of tons in May of 2003.
The cement industry has planned to increase its capacity by 26.25 million tons over the next two to three years to support a smooth growth of the national economy.
Sales of the cement industry rose 8.6 percent and reached 19.81 million tons in the first half (July-December) of current fiscal year 2016-17. The growth indicates that in the next two years the current production capacity of 46 million tons will be insufficient to meet domestic demand. It is anticipated that the capacity would increase to 72.25 million tons in the next two to three years with additional domestic sales of 26 to 28 million tons.
Cement manufacturers requested the government to consider reducing taxes in order to give a boost to cement demand. Cement was one of the most technologically advanced industries that had made inroads even into the Indian market despite tariff and non-tariff barriers.
In the 2016-17 budget, the government increased taxes on cement from Rs600 to Rs1, 000 along with 17 percent sales tax. The increase would take government revenue on cement sales from the previous Rs2, 492 to around Rs3, 250 per ton.
Domestic cement sales grew 11.07 percent in the first half of current fiscal year compared to dispatches in the same period of previous year. Exports, however, fell 3.53 percent in July-December 2016.
Overall, cement sales rose 8.65 percent in the first half compared to the corresponding period of previous year.
In December domestic sales were 3.186 million tons, up 6.74 percent compared to December 2015, whereas exports stood at 0.369 million tons, down 18.98 percent.
Total dispatches in the month were 3.555 million tons, showing a growth of 3.33 percent. Capacity utilization in December 2016 was recorded at 90.88 percent.
Exports to Afghanistan fell from 0.201 million tons in December 2015 to 0.149 million tons in December 2016, a decline of 25.72 percent.
The cement mills located in the northern part of the country dispatched 11.305 million tons for domestic consumption and 1.702 million tons for export reflecting a growth of 11.05 percent and 4.30 percent respectively.
The cement mills based in the southern part of the country dispatched 2.404 million tons of cement for domestic use and 0.839 million tons for export reflecting a growth of 17.49 percent and decline of 9.72 percent respectively.
The industry has been observing a decline in the exports since the beginning of this fiscal year and the worst of that is seen in November this year where total export dispatches were 0.479 million tons which is 10.35 percent lower than 0.534 in November 2015.
All Pakistan Cement Manufacturers Association (APCMA) spokesperson pointed out that exports are likely to remain under pressure as Afghan market is penetrated by Iran and export by sea is on the decline where as exports to India have a positive trend.
Even the crisis in the property sector has not impacted construction activities despite the huge infrastructure projects undertaken by both federal and provincial governments making a very good situation.
The government is urged to support the industry by cutting the taxes, which will decrease the cement prices as well as increase the demand of cement and result in capacity enhancement of the industry creating more job opportunities.
Pakistan started exporting cement in 2002; with exports going from one percent of total dispatches to 35 percent in 2009, and coming down thereafter. In 2015, Pakistan export share fell to 20 percent of all sales and fell to 15 percent in 2016 despite Pakistan finding access to some African markets in recent years.
MAJOR MARKETS
Before 2010, Iraq, Qatar and UAE were major markets but exports to these countries have significantly dropped partly because of the increase in local capacity and production in these countries and the concentration of governments on boasting domestic capabilities.
Recently, Iraq even imposed a ban on imports from Iran that was notably exporting large quantities of cheap cement to the country.
Iran should be mentioned here first. Iran was under international sanctions that had worsened the economy over the past several years. In mid-2015, the Iran deal was signed with the six world powers. As per the agreement, Iran would have to limit its nuclear activity in exchange for lifting of the 12-year-old economic sanctions.
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Iran is the world’s fourth largest cement manufacturer with a capacity of 80 million tons producing 66 million tons.
Since sanctions were lifted, Iran has been accused of flooding proximate markets such as Afghanistan and Central Asia with cheap cement that has hurt traditional exporters in the process.
AFGHANISTAN REMAINS BIGGEST IMPORTER
Afghanistan has been the biggest importer of Pakistan’s cement with cement exports to Afghanistan reaching 52.2 percent of all of Pakistanis cement exports in 2013, but since last year this share has come down to 42 percent.
Afghanistan is still the largest destination but volumetric sales have come down from a few years ago according to data retrieved from All Pakistan Cement Manufacturers Association (APCMA). They nearly halved between 2013 and 2016.
When the news of the Iran deal hit, local it was thought Pakistan’s exports to Afghanistan might not get affected as much already exports had declined due to a slowdown in activity in Afghanistan but more because it was expected that Iran would seek heavy investments in infrastructure and development once it came out of isolation and would utilize the cement it produced locally.
This has not gained that fast a speed, and the country is exporting more than 25 percent of its cement to international markets.
Owing to its nearness to the markets, it is targeting and the lower price advantage, Iranian cement is also being smuggled into Afghanistan aside from being imported officially and some estimates here at home suggest some 1 to 2 percent is being smuggled into Pakistan through Balochistan also.
TRADE WITH INDIA
Pakistan has slowly moved towards India and exports through the Wagah-Attari border have persevered despite the frequent clashes between the two countries and increasing tensions at the border. Despite the fact that India is the second largest producer of cement in the world and is seeing a major infrastructure demand overhaul.
The country’s cement capacity is expected to go up from 395 million tons to 421 million tons by the end of 2017. As a point of comparison, Pakistan’s industry capacity is only 9 percent of India’s.
There are certain markets (Amritsar, Mumbai) where Pakistani exports have landed because they are 10 percent cheaper than those produced by domestic companies’ price.
Though Pakistani exports are a very small share in total consumption of cement in India, they will continue to find a stable market.
SOUTH AFRICAN MARKETS
South Africa was also a major market for Pakistan’s exports. In fact, Pakistan, China and India have historically been the major exporters of cement to South Africa with Pakistan being the top source. Since 2014, the country has cut down on its imports in part because of the slowdown in the construction sector. Local cement manufacturers in South Africa had also found it difficult to survive the competition from cheaper cement from Pakistan and China.
Local players are not so worried about the decline in exports because of the construction boom in Pakistan that they hope to see in the next few years and the higher margin they get for local sales, but exports are significant.
In any case, Pakistan should be able to maintain a 15 to 20 percent share in total dispatches for its exports and not let it decline any further.
Exports help one to grow. They allow manufacturers to remain updated in processes, technology and quality and enhance competitiveness.
FUTURE MARKETS
Pakistan should divert its attention toward markets such as Sri Lanka, Central Asia, Gulf Nations and other African countries to maintain a healthy share in the global market.
Cement industry is among the highest contributors to the national exchequer over the last four years and has paid Rs189 billion in taxes. The contribution has more than doubled from Rs39 billion in 2012-13 to approximately Rs83 billion in 2015-16.
There was a strong need to cut down duties and taxes to bring down the prices and facilitate consumers which would also help industry to grow as it was playing a strategic role in the development of the country.
The factors contributing to decline in exports include increase in fuel prices and other input cost, and the most detrimental was the barriers erected by the countries we export to, such as anti-dumping duty imposed by South Africa to protect its local industry.
In order to meet the massive demand taking place in the country due to various Government and CPEC projects coming up, the industry has gone in for an expansion in its capacity from 44 million tons to 60 million tons within two to three years.
Cement is an energy intensive industry and fuel is around 60-70 percent of the total input cost. The industry not only absorbed the 11.7 percent duty on coal import but the increase in coal price also (from $54 in May 2016 to $105 now). This is being charged for cheating consumers.
Alike with higher taxes and input cost, the cement rates in Pakistan are cheaper than neighboring India (around $4.85 to 5.35) and Sri Lanka ($5.84 to 6.14). The power and quality of Pakistani cement is preferable to that of cement produced in neighboring countries. This is the reason that Pakistan exports cement to almost all its neighbors.