NEW avenues for export of cement are opening up for the indigenous industry as Sri Lanka has shown interest to import 30,000 tons cement from Pakistan every month.
If the industry is able to avail the opportunity, it may secure a significant share of Sri Lanka market by supplying 360,000 tons of cement annually. This however may be just the entry to the attractive market of the size of 3.5 million tons cement a year, which continues to grow rapidly, whereas the industry in Sri Lanka meets only half of the demand.
Given competitive price and quality of Pakistani product, supported with tariff concessions and other benefits under the Free Trade Agreement (FTA) between the two countries, it should not be a difficult target for our cement industry to enhance its share in future. Nonetheless, it should be realised that Sri Lanka cement market has remained an Indian stronghold since long and will offer tough competition.
Interestingly, India-- the second largest cement exporter the world reaching the mark of one billion tons-- may itself become a potential market for Pakistani cement in not too distant a future, in case concerted efforts are made by the local industry to explore possibilities without any loss of time. There are growing large demands for cement in Indian domestic market, where its current ex-factory price is Indian Rs200 per bag of 50-kg compared to that of Pakistan Rs155 in our country. The cement supply prices in India are constrained of logistics and plant locations; hence the retail price increases exorbitantly and consistently, from region to region.
In order to stabilise prices domestically, the Indian government has recently abolished 12.5 per cent custom duty levied on cement, thus allowing its duty-free import. In India, hundreds of companies are operating countrywide as cement importers, while major construction contractors are also given tax concessions on imports. Pakistan, already having competitive edge of low transportation cost and better quality of cement, has therefore an excellent chance to make inroads in the Indian market.
Pakistan has already joined the world club of cement exporters, with the 48th ranking among a total of 116 exporting countries, having attained an export figure of $33.24 million. Its biggest export market is Afghanistan, where the reconstruction activities have increased the demand of cement manifold. Afghanistan continues to offer promising future for export of Pakistani cement in a big way, despite competition from neighbouring countries.
Our existing export markets include the Gulf States, like the UAE and Kuwait, and the Middle East countries, where cement demand is consistently on rise. Considering the $ 625-billion Gulf construction sector, there are tremendous possibilities for the cement industry to capture extra share of this lucrative large market. Bangladesh, Nepal and African countries too are considered potential markets for Pakistani cement. In order to exploit export opportunities fully, the industry has recently decided to develop infrastructure facilities at Karachi and Bin Qasim seaports by constructing cement silos on self-financing basis. This will help in discharging cement directly from bulk silos to the vessels, resulting in efficiency and economy.
The government is equally supportive, and has decided to resume paying rebate on the export of cement. On the other hand, the subsidy on its import has been withdrawn, leaving the domestic market fully open to the local products. The government is considering allowing further concessions/incentives for export, with a view to increase overall export volume. These measures will immensely help in promoting and protecting high investments made in the sector.
Unfortunately, the past export performance has not been very satisfactory. Looking at the export performance during last three years, it is observed that exports remained stagnant, at about 1.50 million tons level. Total exports during the fiscal year 2003-04 were to the tune of 1.12 million tons and reached 1.56 million tons during 2004-05. However, exports marginally declined in subsequent year, registering 1.50 million tons in 2005-06.
Signs of improvement in cement exports are visible During the six-month period (July-December) of current fiscal year 2006-07, Pakistan has exported more than one million tons cement, which is expected to reach 2.50 million tons by the end of the year in view of orders in hand. Thus there is a potential of increasing cement exports from present 1.50 million tons to five million tons annually in next few years.
Cement industry is a highly important segment that plays a pivotal role in the socio-economic development. Though the industry has witnessed its lows and highs, it has recovered during the last couple of years and is buoyant again. Installed capacity for production during December 2006-January 2007 was recorded as 38 million tons compared to 21 million tons in the corresponding period of last year. It is anticipated that by the year 2009, production capacity would rise to the level of 47 million tons annually, much higher than the projected domestic demand during the period.
The capacity expansion, which has been carried out ambitiously, but without an integrated plan and forecast demand-supply analysis, may result in recession in the industry, revisiting the early 1990s when the industry witnessed major increase in production capacity but was unable to market its output. Somehow, present market demand continues to be derived largely from housing sector and infrastructure schemes as mega water reservoir projects still remain on the drawing boards.
Thus, if the mega projects, such as Kalabagh Dam, Diamer-Basha Dam and others, are not implemented as scheduled, the overcapacity is likely to have serious adverse implications for the cement industry and, consequently, multiplier economic repercussions at national level.
Cement sales during July-December 2006 were recorded at 11 million tons, which was though higher than that of corresponding period last year, but not proportionate to the enhanced capacity. Resultantly, the industry could achieve about 70 per cent capacity utilisation during this period, compared to almost cent-per-cent capacity utilisation till June 2006. The declining trend may continue under the given circumstances.
Lucky Cement Ltd was the first to undertake expansion and up-gradation of its production facilities. From initial daily capacity of 4,200 tons until the year 2002, it produces 13,200 tons per day (tpd) at its Pezu, Lakki Marwat plant, whereas completion of a Greenfield project at Karachi will bring its total capacity to 21,600 tpd. The first production line of 4,200 tpd of Karachi plant has recently started commercial production, whereas the second production line of another 4,200 tpd will be commissioned during April-June 2007.
Likewise, DG Khan Cement Co Ltd, with production facilities at Khofli Sattai, DG Khan and Kallar Kahar, Chakwal, has enhanced its production capacity from original 2,200 tpd in 1993 to a total of 13,400 tpd. . Over a period of years, the plant has achieved enhanced capacity of 6,700 tons per day, while a single largest production line of the same size is on stream at Chakwal location. Furthermore, the company is in the process of setting up a new project at Khairpur.
Bestway Cement Ltd has doubled its production capacity-from 6,300 tpd to 12,000 tpd--with addition of a new plant at Chakwal. The company, with initial production facilities at Hattar, Haripur, has taken over ownership and management of Mustehkam Cement as well. Likewise, after undertaking three expansion projects, Maple Leaf Cement has reached the total capacity of 11,700 tpd at its Iskanderabad, Mianwali plant by December last.
Also, Attock Cement production capacity has risen to 6,000 tons per day after commissioning of its second production line of 2,520 tons daily in August 2006. Other cement companies, including Fauji Cement Co, Pioneer Cement, Dewan Cement, Al-Abbas Cement Industries, Fecto Cement, Dadabhoy Cement, Gharibwal Cement and Dandot Cement Co, are implementing up-gradation and expansion plans that are at various stages of completion.
In the wake of its huge surplus production as a result of massive capacity expansion undertaken it rather seems imperative for the industry to sustain existing export markets and simultaneously exploring new markets. There are reports that the producers, under a cartel arrangement, have been increasing price, on a week to week basis, without any rationale. The trend is not considered to be a healthy move, since the government may renew its subsidy to importers, besides curbing exports, in order to stabilise and control prices. This will prove to be catastrophic for our cement industry, which needs to realise that its survival, sustainability and further development lie in consolidating its domestic market.