There has been no doubt the cement sector has come a long way with record high dispatches through FY16 and did kick off the year with incredible growth in August (Check out last month’s numbers, Cement’s winning streaks! published on Sep 26, 2016), but September brings a fall in month-on-month dispatches, clocking at 3 million tons—14.7 percent drop from August’s 3.59 million tons. According to numbers reported by APCMA, the only positive growth that can be seen between August and September is in exports to Afghanistan of 15.5 percent, which despite being surprising is promising for what the future holds.

Meanwhile, the first quarter saw 8.97 million tons of dispatches which are an 8.3 percent growth from this period last year. Local dispatches grew by 9.5 percent while total exports grew by 3 percent between Q1FY17 and Q1FY16. This growth is pretty much in line with the gradual growth in demand this year is supposed to bring with it. To put it in context, in Q1FY16, dispatches grew by only 2 percent year-on-year, against a healthy 8 percent for Q1FY17.

Locally, dispatches in the north were an 8.6 percent growth year-on-year, while dispatches in the south grew by 13.8 percent between the first quarters of FY17 and FY16. Though September sees a drop in all local dispatches, the fall has not affected quarterly numbers.

Exports are doing considerably better than expected largely owing to the growth in cement exports to India. Exports to this market grew by 146 percent in the first quarter of FY17 against FY16. We earlier talked about why Indian market—though promising—should not be relied upon heavily at this point given political tensions that have been exacerbating recently and as is often the case, trade gets in the middle. In fact, there has been news that India has stopped exporting some perishable items via the Wagah-Attari border which is a sign of concern.

If political sparring continues, it is likely Indian importers will find other sources of comparatively cheap cement including Iran that produces double of Pakistan’s existing capacity. Since the lifting of sanctions, Iran has been actively dumping steel across the region; Afghanistan mostly through the Kandahar border and cement players here contend that a bulk of cheap Iranian cement is being dumped through formal channels and smuggled through informal routes into Pakistan too. In Q1FY17, it is no surprise that Pakistani exports to Afghanistan have further fallen—by 7 percent in year-on-year growth, though there was a slight bump between Aug and Sep 2016 so there may still be hope.

Other sea route exports have also fallen—by 18.6 percent in Q1FY17 year-on-year and by 20 percent between Aug and Sep 2016. Economies across the world are slowing down and the slowdown in sea route export is partially due to the still active anti-dumping duty that South Africa has placed on Pakistani cement.

Even so, since margins are significantly higher on local sales than exports, the laser focus for the big and small players is to cater to the growing market at home.

Meanwhile, as the sector is racing toward expansions, which we periodically talk about in this column, and bringing energy efficiency into their plants by opting for captive power, there is still nervousness among cement players that a more established Chinese player might enter the market. Though the persistent barriers to entry in the sector are significantly high where attaining new licenses is near impossible and the likely option for a perspective player is to buy an existing unit (mostly likely Dewan) which would be counterproductive since a lot more investment would go into overhauling a sick unit, but it is still a viable option to consider.

Realistically, if a Greenfield project is kicked off by a new player; land acquisition, mining licenses and starting an operation from scratch would require at least 2-3 years, which is ideal for existing players to further bolster their position in the market. Since most of them are already expanding, with margins moving between 35 percent to 48 percent in the outgoing fiscal; perhaps, a new player would spice things up. In fact, as per our calculations (check out “Cement’s race to expansion: a quick word” published on Sep 16, 2016), the expansion of 22 million tons will completely absorb the demand that will come on annually in the next five years.

In fact, more players with a healthy price competition is just what the doctor ordered, for consumer welfare in the short run in terms of prices, and in the long run in terms of employment and opportunities. Let’s say no to market concentration in a booming sector.



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CEMENT DISPATCHES Q1FY17 (TONS)

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Q1FY17 Q1FY16 YoY Sep-16 Aug-16 MoM

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North-Local 6,123,811 5,638,120 8.6% 2,112,870 2,495,441 -15.3%

South-Local 1,307,157 1,148,442 13.8% 423,280 532,312 -20.5%

All Local 7,430,968 6,786,562 9.5% 2,536,150 3,027,753 -16.2%

Afghanistan 574,735 617,774 -7.0% 227,807 197,262 15.5%

India 379,764 155,902 143.6% 111,534 130,286 -14.4%

Sea route 590,648 726,031 -18.6% 183,438 229,718 -20.1%

All exports 1,545,147 1,499,707 3.0% 522,779 557,266 -6.2%

All dispatches 8,976,115 8,286,269 8.3% 3,058,929 3,585,019 -14.7%

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Source: APCMA.

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