MFN status win-win for both cement industries

Export of surplus Pakistani cement to help cover shortage in India.

KARACHI: The Indian cement industry which has been facing a hard time to meet its local demand can get help from cross-border peers as Pakistan manufactures more than its requirements, according to an InvestCap research note.

There are roughly 300 small and 130 large plants in India with an installed capacity of around 234 million tons whereas the aggregate production capacity stands at around 167 million tons.

This is fuelling delays in construction schedules and forcing the Indian government to import cement from other countries, says the note.

Importing cement from across the border seems viable price-wise as Pakistani imported cement would be available at a discount of 16% at INR235 per 50kg bag in India compared with Indian cement price of INR280 per 50kg bag.

Pakistani cement manufactures need a place where they can off-load their surplus stock of 10 million tons. Local installed capacity is around 44 million tons, whereas cement demand stands at around 31 million tons including 30% exports and 70% local.

Pakistan has already exported bulk of cement to Afghanistan while India received only a tiny chunk of it.

Local cement manufacturers are exporting cement to India through trains only, the reason for the limited quantity of export.

If India allowed cement imports through Wagha border, it would be more beneficial for the players in the northern region including giants DG Khan Cement as they would face lower transportation cost and improved export margins.  Conversely, exporting cement to India through Gujrat port would benefit southern cement players including Lucky Cement as they are situated nearer to the sea port.

Relations between Pakistan and India seem to be on the right track as Pakistan has finally awarded the Most Favoured Nation status to India and took a step forward to further enhance trade relationships. However, the list of goods is yet to be finalised, says the note. All cement manufacturers are now putting their efforts towards the renewal of the BIS (Board of Indian Standard) licences, adds the note.

However, it is still unclear whether India would allow imports by road or not but, one thing is clear that, if exports to India do materialise, it would provide the ailing local cement industry a breathing space to boost volumetric growth.

Published in The Express Tribune, November 12^th,  2011.