Cement Industry

Compiled by: Mirza Rohail B 

History & Introduction

 Growth of cement industry is rightly considered a barometer for economic activity. In 1947, Pakistan had inherited 4 cement cement_industry1plants with a total capacity of 0.5 million tons. Some expansion took place in 1956-66 but could not keep pace with the economic development and the country had to resort to imports of cement in 1976-77 and continued to do so till 1994-95. The industry was privatized in 1990 which led to setting up of new plants. Although an oligopoly market, there exists fierce competition between members of the cartel today.

The industry comprises of 29 firms (19 units in the north and 10 units in the south), with the installed production capacity of 44.09 million tons.  The north with installed production capacity of 35.18 million tons (80 percent) while the south with installed production capacity of 8.89 million tons  (20 percent), compete for the domestic market of over 19 million tons. There are four foreign companies, three armed forces companies and 16 private  companies listed in the stock exchanges. The industry is divided into two broad regions, the northern region and the southern region. The northern region has around 80 percent share in total cement dispatches while the units based in the southern region contributes 20 percent to the annual cement sales.   

Cement industry is indeed a highly important segment of industrial sector that plays a pivotal role in the socio-economic development. Since cement is a specialized product, requiring sophisticated infrastructure and production location. Mostly of the cement industries in Pakistan are located near/within mountainous regions that are rich in clay, iron and mineral capacity. Cement industries in Pakistan are currently operating at their maximum capacity due to the boom in commercial and industrial construction within Pakistan. 

The cement sector is contributing above Rs 30 billion to the national exchequer in the form of taxes.

Cement industry is also serving the nation by providing job opportunities and presently more than 150,000 persons are employed directly or indirectly by the industry.

 The industry had exported 7.716 million tons cement during the year 2007-08 and had earned $450 million, while is expected to export 11.00 million tons of cement during 2008-09 and earn approximately $700 million.

Fiscal Performance 2008-09

Business Recorder reported that Pakistan’s cement exports witnessed a healthy growth of 65%, to over 6 million tons during 7 months of the current fiscal year mainly due to rise in international demand. The exports may reach to 11 million tonnes and earn approx $ 700 million during 2008-09.

The statistics of All Pakistan Cement Manufacturers Association also showed that cement exports had mounted to over 6 million tons in 7 months as compared to 3.62 million tons of same period of last fiscal year, depicting an increase of 2.38 million tons. Cement exports during January 2009 went up by 30% to 0.81 million tons as compared to 0.623 million tons in January 2008.

However, slow construction activities in the country during the period badly upset domestic sale of cement, which depicted decline of 15%, to 10.77 million tons as compared to 12.59 million tons of last fiscal year.

On MoM basis, local dispatches of cement during January 2009 showed a decline of 8%, to 1.51 million tons from 1.65 million tons of January 2008. Overall dispatches, including export and local sales, reached 16.77 million tons during July to January of 2008-09 as against 16.20 million tons of last fiscal year, depicting an increase of 3%.

By September 2009, after witnessing substantial growth in all three quarters of fiscal year (FY) 2008-09, cement sector concluded the fourth quarter with a handsome growth of 1,492 percent on yearly basis, All Pakistan Cement Manufacturers Association’s report revealed on 29th September 2009.

Higher retention prices (up 59 percent) and high rupee based export sales amid rupee depreciation (20 percent) drove profits up north. However, this growth is magnified, as FY2007-08 was an abnormally low profit period for the sector.
Moreover, the performance is skewed towards large players with export potential as profitable companies in both years posted increase of just 109 percent, said analyst at JS Research Atif Zafar.

He said that cumulative profitability of companies in FY09 stood at Rs 6.2 billion or $78.2 million as compared to Rs 386 million or $6.2 million depicting a massive growth of 1,492 percent. Companies with profits in both the years posted 109 percent earnings improvement.

Though total dispatches were down 2 percent, net sales grew by 55 percent to Rs 101.4 billion or $1.3 billion on the back of higher net retention prices (up 59 percent) and improved export based revenues. Cost of sales/tonne also rose by 33 percent on yearly basis amid higher realised coal prices and inflationary pressures, the analyst maintained. 

Production Capacity

In Pakistan, there are 29 cement manufacturers that are playing a vital role in the building up the country’s economy and  contribution towards growth and prosperity. After 2002-3, most of the cement manufacturers expanded their operations, and increased production. This sector has invested about  $1.5 billion in capacity expansion over the last six years.

The operating capacity of cement in 1991 was 7 million tons, which increased to become 18 million tons by 2005-06 and by end of 2007 rose to above 37 million tones, and currently the production cpapacity is 44.07 million tonnes.

Cement production capacity in the north is 35.18 million tons (80 percent) while in the south it is only 8.89 million tons (20 percent).

The cement manufacturers in 2007-08 added above eight million tons to the capacity and the total production was expected to exceed 45 million tons by the end of 2010. It may result in a supply glut of seven million tons in 2009 and 2010.

Actual Cement Production (in million tons)

According to Government Board of Investment,
2001-02 – 9.83
2002-03 – 10.85
2003-04 – 12.86
2004-05 – 16.09
2005-06 – 18.48
2006-07 – 22.73
2007-08 – 26.75
2008-09 – 20.28

 

cement-production3

 

Exports & International Markets

The cement industry of Pakistan entered the export markets a few years back, and has established its reputation as a good quality product. Deregulation after accession of Pakistan to WTO is expected to open the window of competition from cheaper markets.  The recent acquisition of Chakwal Cement by an Egyptian giant, Orascom may be a beginning of such an entry in Pakistan by multinationals.

New avenues for export of cement are opening up for the indigenous industry as Sri Lanka has recently shown interest to import 30,000 tons cement from Pakistan every month. If the industry is able to avail the opportunity offered, it may secure a significant share of Sri Lanka market by supplying 360,000 tons of cement annually.

In 2007, 130,000 tons cement was exported to India.

In 2007, the exports to Afghanistan, UAE and Iraq touched 2.13 million tons.

At present, the economies of major countries are facing recession, but Pakistan’s cement sector is still maintaining a healthy growth. Cement export to India has already slowed after imposition of duty by Indian authorities.

 

Pricing

Another problem faced earlier by the Industry was the high taxation. The general sales tax (GST) was 186% higher than India. The impact of this tax and duty structure resulted in almost 40% increase in the cost of a cement bag (50 Kg). A bag in India earlier cost Rs. 160 as compared to Rs. 220 in Pakistan. In the budget of 2003-04, a duty cut of 25% was permitted to the cement sector with assurance from the cartel to pass on this benefit to the consumers. In 2006, the price of a bag went up to Rs. 430 however in 2007 it has stabilized at Rs. 315 per bag. In mid 2008, cement prices stabilized further at Rs. 220 per bag.

The Government has reduced central excise duty (CED) on cement in the budget for 2007-08 in order to boost construction activity.

Average industry cost of cement bag/50Kg = Rs.193

Average industry price of cement bag/50Kg = Rs.235

 

Domestic Demand

Local demand in the country for the year 2008-09 is expected to be around 20 million tons. Domestic demand is expected to grow at 13% Capacity growth rate (CAGR) during next five years. Certain factors will also affect the growth of cement industry as well. These are as follows:

  

Strong GDP growth

Ø  Higher GDP growth has positive impact on cement demand.

Ø  Cement demand growth rate was double the GDP growth rate in last three years.

 

Housing sector growth

 

Ø  Housing projects consume roughly 40% of cement demand.

Ø  Low interest rates, post 9/11 remittances’ inflow, and real estate boom have helped housing sector growth.

 

Government Development Expenditures

Ø  Government development expenditures count for one third of total cement consumption.

Ø  Increase in PSDP – from Rs.80 bn in 1999 to Rs.520 bn in 2007.

Ø  Infrastructure development in a region triggers private development projects having even positive impact on cement demand.

 

Earthquake Rehabilitation

 

Ø  Earthquake losses of October 8th  are estimated at $ 5.2bn

Ø  Reconstruction work will boost construction material demand

Ø  Reconstruction work is expected to generate cement demand of 4mn tons over next 3-4 years

 

Announcement of large Dams

 

Ø  Construction of four large dams will generate demand of 3.7mn tons. Bhasha Daimer Dam, Munda Dam, Akhori Dam and Neelum Jhelum.

 

Per Capita Cement Consumption

 

Pakistan currently has a per capita consumption of 131kg of cement, which is comparable to that for India at 135kg per capita  but substantially below the World Average 270kg and the regional average of over 400kg for peers in Asia and over 600kg in the Middle East.

Cement demand remained stagnated during 90’s owing to lack of development activities. In 1997, per capita consumption was 73 kg in both Pakistan and India. By 2005-06, consumption in India rose to become 115 kg/capita whereas ours rose to 117 kg/capita. A comparison of few countries in 2005:

Bangladesh      50 kg/capita

Pakistan           117 kg/capita

India                115 kg/capita

USA                  375 kg/capita

Iran                  470 kg/capita

Malaysia           530 kg/capita

EU                    560 kg/capita

China                625 kg/capita

UAE                  1095 kg/capita

 

 

Challenges to Cement Industry

The cost and exports may be affected due to weakness of the US dollar causing coal, electricity charges and freight prices, world-cementcomprising 65 to 70 percent of the cost. The PSDP allocation for 2009 has been cut by Rs 75 billion and feared further cuts would curtail cement demand.

Major capacities of countries like India and Iran are expected to come online by FY10 and onwards which are likely to convert these countries from dependent importers to potential exporters.

Moreover, this current rising trend is expected to be short-lived due to higher interest rates and inflationary concerns are likely to make it disadvantageous for investors to enter the construction industry. In addition to this, to control real estate prices the government is considering imposing a tax on it.

Major General Rehmat Khan, Chairman of All Pakistan Cement Manufacturers Association (APCMA), told Business Recorder, “cement industry is getting Rs 24 per ton as day dutydrawback for export of cement which needs to be revised. In view of today’s calculation for duty drawback, which works out to Rs 130 per ton, he proposed that duty drawback be increased to Rs 130 per ton ,instead of Rs 24 per ton.”

Referring to taxation on cement, he said that cement dispatches are subject to payment of federal excise duty @ Rs 900 per ton, general sales tax @ 16 percent, special excise duty @ 1 percent, marking fee @ 0.1 percent of ex-factory price, besides provincial duties and taxes. These taxes come to around Rs 96 per bag which is the highest in the world. Cement, it appears, is being treated as a luxury item for the purpose of taxes and duties.
He proposed that the government should reduce excise duty by Rs 450 per ton in the forthcoming budget while the remaining half should be eliminated altogether along with the special excise duty. Besides this, sales tax should not be charged on excise duty paid value.
He also proposed withdrawal of customs duty on Pet Coke and remove it from negative list for import from India because cement industry imports Coal and Pet Coke as fuel for production and customs duty on imported coal is zero while on Pet Coke it is charged @ 5 percent.
 
 

 

Important Links:

Cement Industry potential to meet Economic challenges

Pakistan Cement export up by 65%

Cement Profits up 16 times in FY09

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16 Comments

Filed under Industrial sector, Pakistan Economy

16 responses to “Cement Industry

  1. I appreciate your blog and I like your cement industry, i found one more website related to cement plant manufactures you can also visit in it, believe it will be beneficial for you http://www.ashokaengineering.com/cement_plant.html

  2. Administrator

    Cement imports from Pakistan back to normal

    New Delhi: Cement imports from Pakistan, which took a hit during January- February on account of a weakening rupee and re-imposition of countervailing duty (CVD), has jumped back to its normal monthly levels of around 60,000 tonnes.

    Imports had dipped to a mere 11,000 tonnes in January. Imports in long-term are likely to continue at similar levels since imported cement is cheaper by around 10 percent than domestic produce.

    Cement imports from Pakistan started in September 2007 after India removed import duty while it also did away with CVD and special additional customs duty. These steps were taken to augment domestic demand-supply gap, which now stands largely corrected with addition of new capacities. Since then, Pakistani firms have exported 1.2 million tonnes of cement to India. This does not account for even 1 percent of the country’s annual consumption of over 200 million tonnes.

    The imported cement is selling at Rs 220-225 a bag (50 kgs) in Amritsar vis-a-vis Rs 245-250 for indigenous cement. Cement import was rendered unattractive due to weakening rupee. Plus, the government had re-imposed the CVD. It was only after Pakistani companies agreed to cut prices by over $10 a tonne to $54 that import has resumed, said an Amritsar-based importer. Domestic companies raised prices by Rs 3-7 a bag earlier this month.

    These imports need to conform to quality specifications laid down by Indian Bureau of Standards BIS. As of now, 24 Pakistani cement companies have obtained BIS licence to export cement to India. Though companies in Bangladesh. Bhutan and China also secured BIS licence, import is mainly taking place from Pakistan.

    http://www.dailytimes.com.pk/default.asp?page=20094\23\story_23-4-2009_pg5_4

  3. ijaz m

    very us eful articles, compliments. seggest fol, 1. immediately after every fortnight data may be placed on this site for : a cement prod/despatches local and exports. b. oil local prod and imports, imports and exports , auto prod , ijaz lahore

  4. Administrator

    Dear Ijaz M,
    Many thanks for your kind appreciation – feedback is always welcome and constructive for our economic compiling. We have looked into your suggestions and will try our best to implement them as soon as possible. How would you like to view the updates – at the end of every related article or in the comments section? As we’ve been posting latest NEWS in the comments section e.g Cement & Textile. Looking forward for more feedbacks from you,
    Kind Regards

  5. AOA! the above article is a very useful and piece of rubby i would say. i usually done every job regarding the research very sharply. but information regarding the industry of cement take so much time. as i m student of MSc. Entrepreneurship & SME managment At GC University it is so useful for my term paper which is based on the analysis of Ratioes of Cement Company, but it is also required the background so i got it from here. i ve suggestion for u sir please invite all the student of Business from all of Institution of Pakistan to Upload their term working and rsearch to share their brother for the best Human Capital Generation and Entrepreneurs

    Thanks Regards,
    M. Azam Ali

  6. Usman

    These types of articles are indeed very helpful for the students. I am a business graduate and i needed some data related to statistics of Pakistani economy. i could not find that on the website of pakistan’s statistical buareau but i found here.
    so, i appreciate your efffort and pray to GOD that may all the people involved in this process live a healthy, peaceful pleasant and calm life.

  7. I need local consumption and exports detail and pie charts.

    Shahzad Anwar

  8. Junaid Khan

    Great report!!!
    can you guide me to a link or report (preferably free) where i can get historical cement prices in middle east

  9. m younas

    good & excellent performance

  10. Muhammad Mansoor Ali

    I am intrested in having emperical evidenece about the energy crisis impact on the cement indutries output.
    I,ll be much indebted for this benign action.
    Malik Saqib
    0346-5352305

  11. Daniel

    Admin!

    Sir, I would like to do a critical analysis on one of the cement industries of Pakistan comparing it with Average ratios of Industry. Can you help me find out my average ratios of Cement industry of Pakistan.

    Looking forward.

  12. tina

    i need data about health concerns related to cement production in Pakistan

  13. ya its a good impact to show whether u will do or not

  14. Pingback: Overall Vision of Our leader – Musharraf | Our leader - Musharraf

  15. Pingback: President Musharraf’s Vision and Achievements of his tenure | Our leader - Musharraf

  16. Mirza geeeeee Nice article

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