KARACHI: Pakistan’s cement exports may drop with the start of next year as more and more Iranian cement will land in the world market after lifting of sanctions.

“I think the drop in Pakistani cement exports may range between 10 and 15 per cent after December 2015,” an official of a leading cement maker said, asking not to be named.

However, quality-conscious countries like the United Arab Emirates (UAE), India, Qatar and Sri Lanka may still prefer Pakistani cement as it is better than its Iranian counterpart, he added.

Pakistani manufacturers have no option but to increase their market- wise portfolios, he said.

On the arrival of Iranian cement in the Pakistani market through informal channels, the official said it is now difficult to import cement illegally in large quantities. The imposition of 20pc duty on the Iranian cement is by and large favourable for Pakistan’s cement manufacturers.

As for dynamics of the local market, he said that first quarter is always difficult for the cement sector because of monsoon rains, Ramazan effects and extended Eid holidays. Therefore, real direction would only be reflected October onwards, he said.

He was, however, optimistic that the budget allocation for Public Sector Development Programme (PSDP) may play a very positive role in enhancing the domestic consumption and may dilute to some extent the negative impact posed by the anti-dumping duty in South Africa on Pakistani cement and influx of Iranian cement on the international market.

An analyst at KASB Securities said removal of sanctions on Iran will not aggravate current competition situation in Afghanistan, as it is only feasible for Iranian producers to target the Kandahar region (closer to the border), while main market for Pakistani producers is Kabul and Jalalabad where Iranian cement will not be competitive due to higher transportation cost.

Around 60-65pc of Iran’s cement exports go to Iraq, 10-15pc to Afghanistan and the remaining to other countries including Pakistan, he said.

Sadiq Samin of Sherman Securities believed that the nuclear deal between Iran and major world powers is neutral for local cement manufacturers in the medium to long term.

Iran is the fourth largest manufacturer of cement in the world with annual capacity of around 80 million tonnes. This capacity is set to rise in the next one to two years.

By contrast, the country’s cement production stands at 66m tonnes (84pc capacity utilisation) out of which 28pc is exported. Investors fear that such large quantity of cement production may pose a threat to Pakistani cement manufacturers, hurting both their domestic and foreign sales.

However, he said the domestic market may not be impacted much as the Iranian cement, which is mostly being smuggled, may fall once Tehran starts exporting cement. According to his estimates, 300,000 to 500,000 tonnes of cement are being dumped into the Pakistani market (which is 1-2pc of the local demand) due to its cheap price. Therefore, once legal trade starts, Iran may divert sales to more profitable zones.

Published in Dawn, July 25th, 2015

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