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THE cement industry is witnessing a boom 20 per cent growth in overall demand. In 2003-04, exports of cement increased by 160 per cent. The demand has come from the housing sector, government’s infrastructure works, and from Afghanistan and the Middle East. The Rs66 billion canal lining project plus higher allocation or the public sector development programme (PSDP)(Rs202 billion in FY 04-05) has raised hopes for a increasing demand and has encouraged a large number of manufacturers to expand their production capacities.
Upgrading of existing plants addition of and new capacities are underway. Currently, there are 24 factories in operation with an annual capacity of 17 million tons of clinker. Some 18 million metric tons per annum (mtpa) of new capacities are scheduled to start production within the next 24-30 months. A new cement factory takes 30 to 36 months to reach production stage. It is expected that Pakistan’s cement production will almost be doubled by the end of 2007. However, some doubts have been expressed whether the market will absorb this increased capacity.
Let’s have a look at the prevailing situation at the macro level. The global production of cement is estimated 1,900m mtpa, out of which China produces 43 per cent, Middle East six per cent, and Pakistan’s share is of less than one per cent. Pakistan’s per capita consumption of 70 kg is bound to rise in future. There has also been a boom in demand for cement in the Gulf countries for the past one year and this boom will further grow in the wake of major infrastructure work and accelerated construction activities there. At the moment, the demand in Gulf countries is more than its supply which has led to higher prices. Some of the recent prices of cement per ton in the Gulf countries are as under: UAE $82; Qatar $122; Oman $90; Saudi Arabia $26.
Saudi Arabia exercises some control over its price and it has not allowed increase in its cement price. The present scenario in the Middle East has opened up opportunities of export for Pakistani cement to Middle Eastern countries. Pakistan is already exporting cement to Afghanistan. In March 2005, exports to Afghanistan reached 163 thousand tons. This export will increase as the construction and infrastructure activity is gaining momentum in Afghanistan. One estimate is that demand will exceed five million tons in coming years. Iran is coming up with major infrastructure work, which is expected to suspend its supply to Afghanistan and open up further opportunities.
Export prices of cement have registered a phenomenal rise from $26-30 per ton at the start of financial year 2003 to current $40-50 per ton. In view of increasing prices and better margins, more companies are entering into Afghan market.
The demand of Pakistani cement is expected to continue to grow at the rate of 20 per cent for about four years to come. It may then follow traditional growth rate of seven per cent per year. Announcement of major dams will dramatically increase this demand. Challenges ahead; many factories in the Gulf region are coming up with new plants, some of which with added facilities. A total of 25m mtpa of additional capacity is expected to come in the market over the next 18-24 months.
About 90 per cent of these additions are planned in Saudi Arabia and UAE. Some are due to start production in 2005, but most are scheduled to start in 2006 and 2007. Total production capacity is expected to reach 61 in mtpa by end 2007, 70 per cent higher than the current level of 36m mtpa. Other countries in the Middle East are also planning capacity increase. Iran, the second largest cement producer after Egypt is planning massive additions to its capacity— from 33m mtpa to 70 m mtpa by 2010, to meet projected increase in local demand and to compete in the export market. In the given scenario. Pakistan may loose some of its cement export market of Middle East after 2007, because of a greater competition.
Deregulation after accession of Pakistan to WTO is expected to open the window of competition from cheaper markets. There may be no tariff after this deregulation on import of cement allowing its entry into Pakistan from cheaper market at lower rate. Cement from cheaper markets may also block Pakistan’s export of cement to its neighbouring countries.
Global market has vigorously taken up the advantage of economy of scales and multinational giants now control more than 40 per cent of world production—(China not included). The recent acquisition of Chakwal Cement by an Egyptian giant, Orascom may be a beginning of such an entry in Pakistan by multinationals.
The domestic cement industry will have to gear itself to combat market competition and for that it needs consolidation. The cement industry is characterized by a multitude of relatively small size facilities. In total, there are 23 fully integrated gray cement plants currently operating with capacities ranging from as low as 0.3 m mtpa up to 1.46m mtpa. The average size of the plant in Pakistan works out to be 0.77m mtpa, which is much lower when compared to other markets.
In the Gulf countries, the average plant size is 1.6m mtpa while in Egypt, it is over 3m mtpa. The relatively small size of individual cement factories in Pakistan suggests that a significant capacity is currently unable to benefit from the economy of scales.
| Name of cement plant | Current capacity (m mtpa) | Additional new/upgrade tons per day (tpd) | Additional new/upgrade capacity (m mtpa) | Total new capacities (m mtpa) | Location of current/new facilities |
| NORTH | |||||
| Cherat Cement | 0.75 | 8000 | 0.24 | 0.99 | Nowshehra, NWFP |
| Lucky Cement | 1.257 | (2x4,200)+ (2x4,200) | 5.04 | 6.297 | Peezu-NWFP, Nooriabad-Sindh |
| D.G Khan Cement | 1.65 | 3,800+(1x6,700) | 3.15 | 4.8 | D.G.Khan/Chakwal, Punjab |
| Bestway Cement | 0.99 | 1000+(1x6,000) | 2.1 | 3.09 | Hattar- NWFP/Chakwal- Punjab |
| Fecto Cement | 0.6 | 1,000 | 0.3 | 0.9 | FaehJung, Punjab |
| Pioneer Cement | 0.8 | (1x2,000) | 0.6 | 1.4 | Khushab, Punjab |
| Chakwal Cement | (1x4,000) | 1.2 | 1.2 | Chakwal, Punjab | |
| Maple Lead | 1.461 | (1x3,000) | 0.9 | 2.361 | Mianwali, Punjab |
| Maple Leaf white | 500 | 0.15 | 0.15 | Mianwali, Punjab | |
| Kohat Cement | 0.54 | (1x3,800) | 1.14 | 1.68 | Kohat, NWFP |
| Kohat White | |||||
| Cement | (1x500) | 0.15 | 0.15 | ||
| SOUTH | |||||
| Attock Cement | 0.72 | (1x3,000) | 0.9 | 1.62 | Hub, Balochistan |
| Dadabhoy Cement | 0.504 | 1,000 | 0.3 | 0.804 | Nooriabad, Sindh |
| Galadari Cement | (1x2,800) | 0.84 | 0.84 | Bhawani, Balochistan | |
| Pak Land Cement | 0.75 | 1x2,500 | 0.75 | 1.5 | Karachi, Sindh |
| Thatta Cement | 0.3 | 500 | 0.15 | 0.45 | Thatta, Sindh |
| 17.91 |
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