DESPITE the current fall in local consumption, direct foreign investment is coming for creating additional cement production capacity.

The FDI inflow in the cement sector during July-October 2008 amounted to $17.8 million, whereas investors from China and the UAE have recently shown interest in setting up new cement plants. The local market may be depressed but export potential for cement remains strong.

The growth in domestic cement consumption on a year-on-year basis has declined drastically. In the first four months of the 2008-09 (July-October 2008) domestic cement demand was down by 14 per cent as total sales was at the level of 6.337 million tons compared to 7.456 million tons during corresponding period of last fiscal year. This trend continued in November too, having registered despatches of 1.6 million tons during the month.

The slower activity in construction sector caused by economic slowdown will persist, exposing the sector to lower cement demand, unless the government undertakes implementation of a mega water reservoir project, like Diamer-Basha Dam, as scheduled.

Thus, there may be gross under-utilisation of the total installed capacity that has recently been enhanced to 38 million tons annually. It is anticipated that by the end of next year, cement production capacity would rise further, to the level of 47 million tons annually as a result of on-going capacity expansion.

The cement over-capacity is likely to have serious adverse implications for the industry itself and, consequently, multiplier economic repercussions at national level. In the wake of its huge surplus production capacity it rather seems imperative for the cement industry, on one hand, to strengthen existing export markets and, on the other, exploring new markets on priority.

Fortunately, the industry has meanwhile secured a significant share of the world export markets that continues to grow. It has supplied 3.497 million tons of cement to Afghanistan, India, the Middle East and the African countries during July-October 2008. Cement exports had amounted to 2.025 million tons during the same period of previous year. A peak export of one million ton of cement was recorded in the month of October 2008. Again, cement exports in November 2008 were at the level of 913,000 tons. The industry thus witnessed a remarkable growth of 70 per cent in cumulative exports for the five months of the current fiscal year, on a year-on-year basis.

Nonetheless, global economic recession has also impacted the quantum of export orders to cement producers. This is however termed a temporary phase, linked to the Far East and African countries only. Considering the $ 625-billion Gulf construction sector, high demand of cement is projected in the UAE, Muscat and Kuwait, while shortage of cement in the region continues to persist. Forecast for cement demand in Afghanistan is in the range of 1.5-2. million tons per annum for the next five years. New export markets such as Russia and the European countries have already been identified.

Given competitive price and acceptable quality of the product, supported with tariff concessions and other benefits granted by the government, it should not be a difficult target for indigenous cement industry to enlarge its export share in future, despite competition from neighbouring countries. This perception is supported by the fact that the UAE had placed an order in May this year for import of 100,000 tons of clinker from Pakistan for further processing it locally to make cement.

The cement producers have been facing constraints of infrastructure, logistics and plant locations. Karachi and Bin Qasim seaports are congested and lack sufficient berth availability for export of cement. Earlier, the industry had proposed to develop infrastructure facilities at Karachi and Bin Qasim ports by constructing cement silos on self-financing basis. This would have helped in discharging cement directly from bulk silos to the vessels, resulting in improved efficiency and economy. There is no progress reported on the plan.

The government has recently decided that export of cement to the Middle East and Gulf regions would be exclusively handled through Gwadar seaport, where bulk cargo facility exists. Proposal to extend incentives to producers and exporters is on cards so as to compensate higher handling and transport costs at Gwadar compared to Karachi.

These measures would immensely help in increasing overall cement export volumes, exploiting optimally international markets. However, the major threat to the industry may come in the form of higher cost of sales due to increased fuel costs and financial charges.