Red Sea crisis on Pakistan’s cement industry

Pakistan closely monitors the Red Sea crisis as it could disturb the movement of cement export cargoes to the USA and Europe as well as affect coal imports at Pakistani ports. It is also feared that any trade re-route would spark new inflation and supply chain disruption worldwide and in Pakistan.

IMS Research, in a situation review report, warned that escalating tensions in the Middle East have begun to exert a notable influence on global trade, with Yemeni Houthi actions targeting commercial vessels leading to disruptions in maritime traffic. This development has resulted in a substantial surge in freight charges as shipping companies opt for longer routes to avoid the Red Sea, consequently impacting various sectors. Additionally, the heightened tensions in the region have the potential to trigger a commodity super-cycle driven by rising oil prices, contributing to increased inflationary pressures.

The top commodities shipped yearly via the Red Sea and Suez Canal include crude oil, LNG, chemicals, and coal. Approximately 21,000 vessels carrying cargo each year pass through the Red Sea and Suez Canal route. But with recent attacks on vessels, it is estimated that approximately 40-50 per cent of the ships have diverted away from this route amidst rising security concerns. If this issue persists, it may spur another commodity super cycle on the back of increasing freight charges due to re-routing via Africa and possible shortage of commodities amid longer lead time, increasing global prices.

If this issue continues, in the case of Pakistan, then this could impact the oil and gas sector positively, while negatively impacted sectors on account of supply chain disruptions could include fertilisers, textiles, chemicals, steel and cement.

For example, suspended operations in the Red Sea challenge the viability of cement exports and may result in increased costs of imported coal. The extended travel time of nine days for DG Khan Cement exports to North America makes it difficult for the company to continue exporting to that region, in experts’ view. Moreover, the risk of higher imported coal could adversely affect southern-based players, which rely more on imported coal.