Anti-dumping duties on cement
It’s ironic how comfortable the industry becomes using duties to solve international competition problems. It’s easy and relatively cheap when compared to actually investing in being more competitive.
However, duties don’t make companies more competitive, instead they simply introduce a handicap to the more competitive producers overseas. When used as a substitute for becoming and remaining fiercely competitive, it has the effect of driving customers away as soon as an alternative presents itself.
Case in point is what happened when the anti-dumping duties were imposed on cement from Pakistan. In the past when the cement cartel was legally excluded from the competition legislation, making a profit was easy. Each company had their neat little part of the market and prices were conveniently shared through the Cement and Concrete Institute of South Africa. Then the exemption was withdrawn in 1996, but the local producers found it convenient to keep the market neatly segregated as before. Of course this behaviour kept the price of cement high and cracked open the door for imports to enter the country.
The Competition Commission found that when the cartel was finally dissolved by the authorities, it benefited the consumer between R4,5bn and R5,8bn, which gives a sense of just how much more expensive South African cement was because there was no effective competition.
By that time, the imports were moving in from Pakistan and they had gone from arriving by the container in 2012, to importers chartering whole ships and bringing in stock literally by the shipload in 2014. But how does cement travel all the way from Pakistan to South Africa and then still get sold competitively in the South African market? The domestic producers of cement will say it’s because the Pakistani’s are dumping, and the importers and exporters would say that it’s because the cartel massively increased the price of cement in South Africa, making this a very attractive market to send product to.
Whether dumped or not, what is clear is that domestic cement needs to be expensive enough to create a window for imports to enter through. But anti-dumping duties were imposed, the lowest of which was 14,29% on Lucky Cement. To impose anti-dumping duties you need to meet three criteria, being: dumping, injury to the domestic industry, and the injury being caused by the dumping specifically, not by something else (known as causality).
Without getting into the technicalities, the important issue to focus on for now is causality. A very simple way to view causality is to think of it as all the reasons you buy something that are not related to price. If you buy it because of the price and the price is a dumped price, then there is a causal link. This usually means that when you fix the dumping problem, in this case by imposing an anti-dumping duty, you should drive business to the domestic industry, but this is not happening currently.
If we look at the import statistics for the last two quarters of 2015, we see that China exported 38 000 tons of cement in both September and November respectively. This equates to two full ship loads and is an indication that the importers are looking to move their business away from Pakistan to China, not to the domestic industry. This leaves the domestic industry with a dilemma as it is clear that there is a reluctance to move the cement business to these producers.
It also leaves Lucky Cement with a dilemma as their lower duty should mean they pick up all of the export business out of Pakistan, but the Rand has not played ball. The weakening of the Rand means that Pakistan’s Dollar-based exports have become significantly more expensive and China’s depreciation of the Yuan has suddenly made their exports more competitive.
Pakistan has moved from a FOB price of R670 per ton in January 2015 to R680 per ton in December 2015 (but now having to add 14,29% in duty onto the December number takes them up to an effective R777 per ton). China, on the other hand, is selling at R630 per ton (FOB). When you are moving 38 000 tons at a time that is an effective price difference of R5,6m per shipment.
At least one factory in China has been approved to send cement to South Africa. At a cost of roughly R1m to get a factory approved to ship cement, and a price advantage of over R5m per shipment, it won’t be long before a number of other Chinese factories are approved and we see Chinese cement simply replacing the Pakistani cement in South Africa.
What is
unlikely to happen in the short term is to see the local industry reclaim the
market share it lost. This is the price of not being competitive.
Article first
appeared in Export & Import SA 
