CEMENT industry is currently implementing an ambitious plan to expand its installed production capacity by about 60 per cent, with an investment of over one billion dollars, to be completed within three years. The present installed production capacity is 18.04 million tons of Portland cement per annum. It is envisaged to increase installed capacity, in phases, to reach 28.21 million tons annually by the year 2007-08. In some cases, the requisite plant machinery has been received at site or installation is in advanced stage, whereas in others, order for procurement of machinery has been placed. Lucky Cement, originally a 4,200 tons per day (tpd) capacity plant, has recently undertaken the BMR of the two existing production lines that would increase its production capacity to 6,000 tpd. The company has also installed an additional production line of 3,800 tpd that is scheduled to go into production by April 2005 —- then emerging as the largest cement producer in the country. Similarly, D G Khan Cement Co, till now the largest cement plant with an installed capacity of 6,700 tpd, is scheduled to enhance its capacity by putting up another line of 3,800 tpd capacity, in the first phase, which will go into production by July 2007.

The management of Bestway Cement is setting up a new unit of 3,800 tons per day at the site to double its installed capacity. Attock Cement Ltd, currently a 2,400-tpd plant, is setting up a second production line of 3,000 per day that will be operational in January 2007. Likewise, Dadabhoy Cement Industries will increase its installed capacity from existing 1,800 tpd to 2,800 tpd, whereas Pioneer Cement have finalized plans to raise capacity, from existing 2,000 tpd to 4,000 tons per day. Out of total 23 factories in operation, with the exception of those in public sector, are going ahead with expansion plans through undertaking the BMR.

Also, there will be significant addition to the cement production capacity through establishing new projects. Chakwal Cement with an installed capacity of 4,000 tpd and Zaman Cement, a unit with 3,000 tpd capacity, are scheduled to commence production soon. Galadary Group of the UAE is establishing a 2,000-tpd plant, which is under commissioning.

The Pak-China Cement plant is being converted to a white cement plant of 500 ton per day capacity, and when the plant goes into production, under the name Maple Leaf White Cement, it would be the largest plant of its kind. At present. the installed capacity in Pakistan for white cement is 80,000 tons per year.

Indeed, there has been an unprecedented rise of cement demand during the last two years. This was the result of increased construction activities due to improved economic scenario, massive undertaking of various development and infrastructure projects at national level, and growth of housing schemes and civic facilities in public as well as private sector. Another major factor for the record increase in demand has been the enhanced exports of cement to Afghanistan and the UAE during this period.

During the fiscal year 2003-04, total cement sales rose to the level of 13.63 million tons, compared to 11.40 million tons during the year 2002-03, registering a growth of about 20 percent. Sales in the domestic market were to the level of 12.51 million tons, which is 14 per cent increase, whereas export sales amounted to additional 1.12 million tons, a growth of 160 percent over previous year. Resultantly, the cement industry achieved 81 per cent capacity utilization during the year ending June 30, 2004, the highest ever during the last decade, whereas a few of individual cement plants even achieved 85 to 100 per cent capacity utilization.

The trend of increased demands continues. Total sales during the current fiscal year 2004-05 are expected to reach mark of 15 million tons, as evident from latest figures. The production during the first half of the current fiscal year (July-December 2004) was 7.32 million tons as compared to 6.03 million tons for the same period last year. The industry thus achieved 83 per cent capacity utilization. The excellent performance of the sector has obviously increased profitability of the companies. During the period July- December 2004 industry has earned an after-tax profit of Rs3,200 million, registering a growth of 17 per cent. In comparison, it had earned a net profit of Rs2,700 million during corresponding six months of July- December 2003.

The need for the industry to undertake capacity expansion is manifest in view of strong market demands, improved investment climate, and salutary fiscal and industrial policies of the government. There is, however, a definite need for the industry to take future investment decisions based on an integrated and well-thought out plan. The reliance on simply the available growth estimates may result in another crisis similar to the early 90’s when the industry witnessed major increase in the production capacity but was unable to market its output.

In the past, performance of the industry remained erratic, and domestic demand could not sustain, in total disregard to the forecast. The average increase in cement consumption during the last five years or so remained optimally at four percent annually. During these years, the cement production capacity doubled, from 8.9 million tons to 17.7 million tons, in comparison to an average of four to five per cent annual growth in demand. It may be observed that the industry suffered huge production and financial losses until the year 2002-03, and it operated much below its installed capacity, at 40 to 66 per cent.

The country will definitely need more cement in next five years than the present production capacity. It is anticipated that growth in demand in subsequent years would be 10 to 15 per cent annually. However, in the absence of a supply/demand-forecast system, these estimates may not be reliable and depend on a number of limiting factors. Again, the boom in export market may not continue since it is foreseen that within few years the reconstruction of Afghanistan and Iraq may reach saturation point.

Also, our price is not internationally competitive, and present success in export market is credited to 12.5 per cent export rebate allowed by the government. The projected domestic demand is largely based on implementation of proposed mega projects such as Kalabagh Dam or Basha Diamer Dam that have doubtful prospects of construction, at least in terms of foreseeable time schedule. Indeed, the long-term projections could suffer from technological transformations, economic growth development rate, investment climate and other factors.

When the government follows deregulation and liberalization, and bank financing is freely available, it becomes vitally important for producers to exercise due care and diligence in planning and embarking on expansion programme so as to avoid creating over-capacity. Supply-demand situation is a critical factor in determining the economics of expansion, particularly of the large size that is planned. It is understood that these cement producers have not undertaken proper detailed feasibility study for working out the economical size of additional production capacity over the time.

While the proposed capacity expansion has its merit, the producers should carry out, if it is not already late, a detailed study for its viability taking into consideration various elements of future trends, domestic as well as international, co-relating with the economic variables. Otherwise, the expansion programme is likely to have serious adverse implications—-commercial, financial and strategic-for the cement industry as well as for the nation.