PAKISTAN: Shadow over South African cement exports

With export avenues narrowing down for Pakistani cement, news about filing of an application against dumping in South Africa comes as rather discouraging. To recall, South Africa is the leading export destination for cement exports from Pakistan via sea. 

Amongst cement exporters from Pakistan, Lucky Cement Limited (KSE: LUCK) stands as the leading supplier of Portland cement to South Africa. LUCKs cement costs up to 18 percent less than the ex-factory price charged by PPC, one of the leading cement manufacturers in South Africa. 

Industrial reports indicate that LUCKs exports to South Africa stood at 0.6 million tons during FY14. This accounts for a 24 percent share in the company's total exports and a seven percent share in total industrial exports from Pakistan. During FY14, LUCKs market share in terms of exports was around 20 percent. 

Given these statistics, how would imposition of the duty, if it were to happen, affect LUCK, whose total market share in the cement sector currently stands at 30 percent. 

According to Sajjad Hussain, Research Analyst at BMA Capital, imposition of anti-dumping duty of 48 percent would nullify the entire price differential offered by LUCK compared to local players in South Africa. 

Every 10 percent decline in exports to the country could bring down LUCKs earnings by one percent, while in the advent of no exports to South Africa, earnings could be hit by as much as 10.3 percent, Hussain notes. The situation could be aggravated in case other African countries follow suit and impose similar duties on Pakistani cement, as capacity expansion is also underway in the region. 

On the other hand, Ali Amin, Research Analyst at KASB Securities, posits that LUCK is likely to turn up safe in the anti-dumping case since protection to the local industry would significantly reduce consumer surplus. Local industry in South Africa also raised cases against import of Pakistani cement earlier which were put down by the government for lack of evidence, he notes. 

However, LUCK itself has reportedly been in the process of establishing a plant in the Democratic Republic of Congo which will likely go online next year with a capacity of 1.2 million tons per year. One assumes that the plant would also be delivering to other emerging export destinations in the region, including Angola, Kenya and Madagascar. 

Regardless of the result of the anti-dumping case, LUCK seems to have a plan in place. But, does the Pakistani cement industry have one, particularly at a time when exports seem to be getting more challenging?