India raises duty on Pakistani imports, Cement sector to bear the consequences?

February 18, 2019 (MLN): Pakistan’s dynamics with India is well-known to everyone in this age and the fact that the neighbors are habitually on the edge when it come to their affiliation with one another, almost seems like natural behavior.  

The recent terrorist attack on an Indian convoy of vehicles carrying security personnel in the Pulwama district of Indian Occupied Kashmir, has intensified the stress between these two countries as the blame for this attack lands on Pakistan’s shoulders despite condemnation and denial of any link with the incident by the Pakistani government.

In revenge for the killing of 45 Central Reserve Police Force (CRPF) officers, the Indian government has decided to revoke the Most-Favored Nation (MFN) status of Pakistan (a special trading privilege) and to raise custom duties on imports from Pakistan to 200% (from current level of c30-50% for farm products and c7.5-15% for non-farm product) with immediate effect.

Shedding light on the consequences entailing this action, EFG Hermes referred to official trade statistics and data for the past few years and concluded in its research note that ‘Pakistan’s overall trade with India isn’t substantial (only 1.8% of total exports, and 3.2% of total imports).’

In conversation with Mettis Link News, Mr. Jawad Shamim elaborated that on the import front, Pakistan will have to find a substitute for the imports of cotton and chemical which are the basic requirements and cannot be put on hold for long.

But on the other hand, exports to India are expected to suffer noticeably. Nonetheless, he believes that the impact on overall balance of trade will not be very harsh due to the insubstantial amount traded.

However, particularly cement exports to India are significant - constituting 21% on average of the total cement exports over the past four years, and 16% of the current fiscal year’s cement exports till date.

Moreover, following the strong devaluation of the PKR, cement exports had picked up the pace (+50% Y-o-Y during 7MFY19) – where India has remained a major market (northern players are the major exporters).

But under present circumstances, analysts at EFG Hermes believe that the Pakistani cement manufacturers will have to find a new market as exports to India will become commercially unviable.

“We see this as a clear negative for the Pakistan Cement sector because, at a time of weakening local dispatches, an adverse development on the exports front means lower overall demand amid increasing supply,” stated the brokerage house.

Recognizing DG Khan and Maple Leaf Cement as the major cement exporters to India, it can be concluded that these two players shall bear substantial pressure.

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