The road to cheaper cement from Pakistan is, well, by road

MUMBAI: Pakistani cement producers, who currently have 7 million tonnes of excess capacity, are slowly increasing exports to India.

Lucky Cement, a Pakistani manufacturer, recently sent 125 tonnes in a trial deal through the sea route, while in the first week of March, Lahore-based DG Khan Cement Co exported 1,500 tonnes through the Mundra port.

Is this a rising trend, and therefore an inflation beater? There are many imponderables.

For one, the Lucky Cement cargo remains stuck in the Mumbai docks because the company did not know that a Bureau of Indian Standards clearance was needed for the product to hit the local streets.

A Lucky Cement representative is currently in New Delhi trying to get clearance for the consignment, which should take about two to three weeks, sources said.

Cement analyst Urmik Chhaya of Alchemy Equity Research, in a note on Wednesday said his talks with a Lucky Cement director in Pakistan were enlightening.

The company, he said, had exported 125 tonnes at an f.o.b rate of $65/tonne or Rs 2784 per tonne.

Effectively, Chhaya said, this means the price per bag imported through the (costlier) sea route will not exceed Rs 211.50 in Mumbai, that is 10-12% lower than the prevailing market prices of Rs 235 - Rs 245.

This includes 12.5% VAT (which will not be applicable if cement is being imported for self consumption), a lead distance of 200 kms, a freight rate of Rs 1.5/tonne-km, port handling and loading/unloading of Rs 380 per tonne and container freight at $5 a tonne.

DG Khan had in March exported at $70 per tonne — before the 16% countervailing duty and 4% special additional duty were waived.

The freight cost for the Lucky Cement consignment was lower — at $4.50 per tonne — because cement was despatched in sugar containers that were returning to India empty from Pakistan. Each container held 400 bags of 50 kg - or 20 tonnes.

Will such imports affect local prices?

Quantity is the key, said analysts.

Unless imported in large numbers the street price will not be impacted because the incremental demand alone in India is 9 million tonnes. That is 2 million tonnes more than the total excess capacity in Pakistan.

The far cheaper road route is key to larger imports. If that is allowed, the game changes significantly, analysts said. Many Pakistani cement manufacturers are currently awaiting a green signal from both their own and the Indian government to supply the building material through the road.

Pakistan’s export policy currently does not allow cement exports by road transport to any country other than Afghanistan.

Jaxay Shah, president of Gujarat Institute of Housing and Estate Developers in Ahmedabad, had told DNA Money last week that it would be far cheaper if the Centre allowed imports by road.

“Gujarat shares the border with Pakistan so it will be very feasible to use the roads. If our government permits, it would take just 10 days for consignments to reach the state,” Shah had said.

Importers in Gujarat are currently negotiating with Chinese cement exporters and expect the landed cost to be around Rs 160 per 50 kg bag in the state.

Pakistani cement will cost a bit more after including transportation and VAT, said Shah.

Macquarie Research analysts Rakesh Arora and Arijay Prasad, in a note a couple of days ago, said rising shipping freight, 93% capacity utilisation at ports along with distribution and warehousing issues make the sea route economically unviable when importing Chinese cement.

“Pakistan may very well hold the trump card in India’s inflation fight because of its road connectivity,” said an analyst.

Javed Ali Khan, director general of Pioneer Cement, based in Sargodha, Punjab, had told DNA Money last week that Pakistani producers can easily send 25,000-30,000 metric tonnes per month both through both the Wagah border in Amritsar and straight to Gujarat.

Pioneer sells two-thirds of its produce in the Lahore area. Khan claimed the quality of Pakistani cement was better than Chinese.