Pakistan Cement Industry

API ReportAnalysis Of Cement Industry Of Pakistan

Historical Profile of Cement Industry

The cement industry in Pakistan has grown gradually with the passage of time. At the time of independence there were only four units with total production capacity of nearly half a million tons per annum. By 1972 the number of cement plants increased to 14 and the production capacity also increased to 2.5 million tons. Both public and private sectors took initiative to establish new plants. As was the case for other industries, the cement industry was also nationalized in 1972 and the State Cement Corporation of Pakistan (SCCP) was established and given the responsibility to manage the production of cement in the country. Considering the higher cement demand as compared to supply, cement import was also allowed in FY 76-77 that continued until FY 94-95. With a change in policy of state control over industrial units, the state owned cement plants were also put-up for privatization along with other industries. The private sector was allowed to invest in the cement manufacturing. Consequently, the role of SCCP as market leader vanished gradually and currently it owns only four plants, of which two have been closed down on efficiency and profitability grounds. In view of the higher demand during the period of de-regulation and liberalization, a number of new units were set up and many others invested heavily to increase their existing production capacity. As a result, the production capacity has reached 17.7 million tons per annum during 2003.

Sector overview

There are 29 cement production units in the country. Up to May 2007, the total installed cement production capacity is 36.841 million tones. By the end of June 2011, the installed cement production capacity will touch to the level of 49.579 million tones. Due to political instability and lack of allocation of funds for public sector development program, cement industry of Pakistan was in the recession phase had registered an average growth rate of 2.96% for the period from 1990 to 2002. For the period from 2003 to 2007 cement industry of Pakistan had registered an average growth rate of 20%. The boost in cement sector is because of the rising construction activity in the country, reconstruction activity in Afghanistan and increasing development expenditure by the government.

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07(Jul-Mar)

No. Of operational

units

22 22 23 24 26 29

Install Capacity

(million tons)

15.72 16.32 16.93 17.90 24.30 36.841

Domestic Consumption (million tons)

9.83 10.98 12.54 14.78 16.85 16.98

Export (million tons)

0.107 0.43 1.118 1.565 1.505 2.13

Capacity Utilization

%

62.5 67.2 74.0 82.5 84 76.38

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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 over 87 percent share in total cement dispatches while the units based in the southern region contributes 13 percent to the annual cement sales.



Number of Units (Grey Cement)

North Zone 19South Zone 10

Total 29



Contribution to National Economy

By

Cement Sector

Direct and Indirect Taxes

Rs. 23.50 Billion

Value of Fixed Assets Deployed

Rs. 85.21 Billion

Loans from Financial Institutions

Rs. 79.53 Billion

Shareholders Equity

Rs. 80.00 Billion

Employment (Direct & Indirect)

150,000 (Approx.)

Source: All Pakistan Cement Manufacturing Association of Pakistan (APCMA)

TYPES OF CEMENT PRODUCED IN Pakistan

1 Ordinary Portland Cement (OPC)



2 Sulphate Resisting Cement (SRC)

3 Blast Furnace Slag Cement (BFSC)

4 White Cement

PRODUCTION PROCESS

1 Dry Process (In Pakistan most of the industry employs dry process)

2 Semi-wet Process

3 Wet Process

RAW MATERIAL

Main constituents of cement include:1 Lime

2 Alumina

3 Iron

4 Laterite

These constituents are obtained from following raw materials:1 Lime stone

2 Clay

3 Overburden

4 Shale

5 Gypsum

6 Iron ore

7 Bauxite

8 Slag / Fire Clay



Cement manufacturing consists of following four processing steps:1 Crushing of Raw Material

2 Grinding of Raw Material

3 Pre-calcining / Pyroprocessing

4 Grinding of Clinker and Packing

MAIN UTILITIES USED FOR CEMENT PRODUCTION1 Fuel Oil , Natural Gas and Coal

2 Electricity

3 Water

ANNUAL CAPACITY, NO OF LINES, YEAR OF COMMISSION & PROCESS

2005 2011

Sr. Name of Unit Annual Capacities BMR/New Upgraded Capacity % No. of Year of Year of ProcessProvince

No. Clinker Cement Clinker Clinker Cement Age Lines Commissionupgradatio

n

1 Askari (Wah) 900,000 945,000 150,000 1,050,000 1,102,500 2.22% 1 1994 Jan-06 Dry Punjab

2 Askari (Nzp) 1,200,000 1,260,000 300,000 1,500,000 1,575,000 3.18% 1 1995 Aug-06 Dry N.W.F.P

3 Bestway (Hat) 990,000 1,039,500 180,000 1,170,000 1,228,500 2.48% 1 July, 1998 Jul-05 Dry N.W.F.P

4 Bestway (K.K) - - 1,725,000 1,725,000 1,811,250 1 July, 2006 Dry Punjab

New (K.K) - - 1,725,000 1,725,000 1,811,250 1 July, 2008 Dry Punjab

- - 3,450,000 3,450,000 3,622,500 7.31%

5 Cherat 750,000 787,500 240,000

990,000 1,039,500 2.10% 1 July, 1985 Aug-06 Dry N.W.F.P

6 D.G.Khan

Old Line 660,000 693,000 150,000

810,000 850,500 1 April, 1986 Jul-05 Dry Punjab

New Line 990,000 1,039,500 210,000 1,200,000 1,260,000 1 June, 1998 Oct-05 Dry Punjab

1,650,000 1,732,500 360,000 2,010,000 2,110,500 4.26%

7 D.G.Khan - - 2,010,000 2,110,500 4.26% 1 14-May-07 Dry Punjab



(k.K) 2,010,000

8 Dandot 480,000 504,000 -

480,000 504,000 1.02% 1 April,1986 Dry Punjab

9 Fauji 900,000 945,000 210,000 1,110,000 1,165,500 1 Nov, 1997 Aug-05 Dry Punjab

New Line - - 2,010,000 2,010,000 2,110,500 1 1-Aug-10 Dry Punjab

900,000 945,000 2,220,000 3,120,000 3,276,000 6.61%

10 Fecto 600,000 630,000 180,000

780,000 819,000 1.65% 1 Dec, 1988 May-06 Dry Punjab

11 GharibWal 180,000 189,000 -

180,000 189,000 1 Sep, 1964 Wet Punjab

180,000 189,000 -

180,000 189,000 1 Sep, 1964 Wet Punjab

180,000 189,000 -

180,000 189,000 1 Sep, 1964 Wet Punjab

New Line - - 2,010,000 2,010,000 2,110,500 1 Jan-08 Dry Punjab

540,000 567,000 2,010,000 2,550,000 2,677,500 5.40%

12 Kohat 540,000 567,000 -

540,000 567,000 1 April, 1983 Dry N.W.F.P

New Line - - 2,010,000 2,010,000 2,110,500 1 Jul-07 Dry N.W.F.P

540,000 567,000 2,010,000 2,550,000 2,677,500 5.40%

13 Lucky 628,571 660,000 91,429

720,000 756,000 1 June, 1996 Jul-05 Dry N.W.F.P

628,571 660,000 91,429

720,000 756,000 1 June, 1996 Jul-05 Dry N.W.F.P

New Line I - - 1,142,857 1,142,857 1,200,000 1 Sep-05 Dry N.W.F.P

New Line II - - 1,142,857 1,142,857 1,200,000 1 Sep-06 Dry N.W.F.P

1,257,143 1,320,000 2,468,571 3,725,714 3,912,000 7.89%

14 Maple Leaf

Old Line 120,000 126,000 -

120,000 126,000 1 1956 Wet Punjab

" 171,000 179,550 -

-

- 0 1960 Wet Punjab

" 180,000 189,000 -

180,000 189,000 1 March,1988 Wet Punjab

New Line 990,000 1,039,500 210,000 1,200,000 1,260,000 1 April, 1998 Aug-06 Dry Punjab

New Line - - 2,010,000 2,010,000 2,110,500 1 Jun-07 Dry Punjab

1,461,000 1,534,050 2,220,000 3,510,000 3,685,500 7.43%

15 Mustehkum - - 173,250 1 1965 Wet N.W.F.P



165,000 165,000

- - 165,000

165,000 173,250 1 1965 Wet N.W.F.P

- - 300,000

300,000 315,000 1 1981 Dry N.W.F.P

- - 630,000

630,000 661,500 1.33%

16 Pioneer 600,000 630,000 105,000

705,000 740,250 1 October,1994 Jul-05 Dry Punjab

New Line - - 1,228,571 1,228,571 1,290,000 1 May, 2006 Dry Punjab

600,000 630,000 1,333,571 1,933,571 2,030,250 4.10%

17 Pakistan - - 2,010,000 2,010,000 2,110,500 1 July, 2006 Dry Punjab

New Line - - 2,010,000 2,010,000 2,110,500 1 July, 2010 Dry Punjab

- - 4,020,000 4,020,000 4,221,000 8.51%

18 Dewan Hattar 540,000 567,000 -

540,000 567,000 1 Feb-02 Dry N.W.F.P

- - 540,000

540,000 567,000 1 Jul-05 Dry N.W.F.P

540,000 567,000 540,000 1,080,000 1,134,000 2.29%

19 Flying 600,000 630,000 -

600,000 630,000 1 Jan-05 Dry Punjab

- - 600,000

600,000 630,000 1 Nov-06 Dry Punjab

600,000 630,000 600,000 1,200,000 1,260,000 2.54%

19 SUB TOTAL 13,008,143 13,658,550 24,922,142 37,759,286 39,647,250 79.97% 38

SOUTH ZONE

Sr. Name of Unit Annual Capacities BMR Upgrated capacity %

No. of Year of Year of Process Province

No. Clinker Cement Clinker Clinker Cement Age LinesCommissio

n upgradtion



20 A.C.Rohri 50,000

52,500

-

50,000

52,500 1 1938 Wet Sind

180,000

189,000

-

180,000

189,000 1 1972 Wet Sind

230,000

241,500

-

230,000

241,500 0.49%

21 Attock. 720,000

756,000

-

720,000

756,000 1 1988 Dry Baluchistan

New Line -

- 990,000

990,000

1,039,500 1 Jun-06 Dry Baluchistan

720,000

756,000 990,000

1,710,000

1,795,500 3.62%

22 Dadabhoy 504,762

530,000

-

504,762

530,000 1.07% 1 1985 Dry Sind

23 Al-Abbas 150,000

157,500 450,000

600,000

630,000 1 1989 Dry Sind

300,000

315,000 300,000

600,000

630,000 1 Aug-98 2006 Dry Sind

450,000

472,500 750,000

1,200,000

1,260,000 2.54%

-

24 Javedan 150,000

157,500

-

150,000

157,500 1 1964 Wet Sind

150,000

157,500

-

150,000

157,500 1 1965 Wet Sind

300,000

315,000

-

300,000

315,000 1 1980 Dry Sind

600,000

630,000

-

600,000

630,000 1.27%

-

25 Lucky

- - 1,142,857

1,142,857

1,200,000 1 May, 2006 Dry Sindh

- - 1,142,857

1,142,857

1,200,000 1 Nov-06 Dry Sindh

- - 2,285,714

2,285,714

2,400,000 4.84%

26 Pakland 750,000

787,500

-

750,000

787,500 1 1985 Dry Sind

New Line -

- 720,000

720,000

756,000 1 Oct-08 Dry Sind

750,000

787,500 720,000

1,470,000

1,543,500 3.11%

27 Pakistan Slag

-

157,500

-

-

157,500 0.32% 1 1994 Dry Sind

28 Thatta 300,000

315,000

-

300,000

315,000 0.64% 1 1982 Dry Sind

29 Zeal Pak 102,000

107,100

-

102,000

107,100 1 1956 Wet Sind

102,000

107,100

-

102,000

107,100 1 1956 Wet Sind



102,000

107,100

-

102,000

107,100 1 1960 Wet Sind

102,000

107,100

-

102,000

107,100 1 1963 Wet Sind

300,000

315,000

-

300,000

315,000 1 1969 Wet Sind

300,000

315,000

-

300,000

315,000 1 1969 Wet Sind

1,008,000

1,058,400

-

1,008,000

1,058,400 2.13%

10 SUB TOTAL 4,562,762

4,948,400 4,745,714

9,308,476

9,931,400 20.03% 22

29 GRAND TOTAL 17,570,905

18,606,950 29,667,856

47,067,762

49,578,650 100.00% 60

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Growth in cement sector

The cement industry of Pakistan entered the export markets a few years back, and has established its reputation as a good quality product. The latest information is that India will import more cement from Pakistan. So far 130,000 tones cement has been exported to the neighboring country. During the financial year-07, cement sales registered a growth of 31 percent to 17.53 million tones as against 13.5 million tones sold last year. The cement sales during July-February-08 showed an increase, both in domestic and regional markets to 18.17 million tones. The domestic sales registered an increase of 7.2 percent to 14.4 million tones in the current period as compared to 13.5 million tones last year whereas exports stood at 3.7 million tones as against 1.8 million tones in the corresponding period last year, showing an increase of 110 percent. The government is considering allowing further concessions and additional incentives for cementexport, with a view to increase overall export volume. These measures will immensely help inpromoting and protecting high investments made in cement sector in recent years. In the wake of itshuge surplus production as a result of massive capacity expansion undertaken it rather seems. imperative for Pakistani cement industry, on one hand, to sustain existing export markets and, onthe other, explore new markets.



Demand Growth:

The cement demand grew 19 percent and 13 percent during FY05 and FY06 respectively. During the first nine months of FY07-08, production increased by 30 percent as compared to last year. The demand for cement was grown by 26 percent during FY07 and 17 percent in FY08. The per capita consumption of cement has risen from 117 kg in FY06 to 131 kg in FY07. The main factors behind increase in demand of cement were: 60 percent higher Public Sector Development Projects (PSDP) allocation, seven percent GDP growth, increasing number of real estate development projects for commercial and residential use, developing export market and expected construction of mega dams. The operating capacity of cement in FY05 and FY06 was 18 million and 21million tonnes, which rose to 37 million tonnes by the end of FY07. Local demand of cement is rising not because of higher local utilisation but due to high exports, and hence less availability of cement is pushing local demand and prices up. Construction of four large dams will generate demand of 3.7mn tons as construction activities start. Our estimate does not include demand generation from Skardu-Katzarah dam as its feasibility study in not yet completed. Extent of demand generation will depend on size of dam, type of dam, and extent of relocation/resettlement activities required.Bhasha dam will generate maximum demand as it is RCC concrete dam whereas other dams being Earthfill/Rockfill dams will require less cement for their construction. Resettlement activities for Kalabagh dam will generate maximum demand as it is located in a highly populated area.

Up coming cement projects

In FY08 to-date, Pakistan cement industry brought in 5.84 million tons of new capacity of cement production taking the total cement capacity to 36.1 million tons. This includes DG Khan’s new Khairpur plant & Maple Leaf’s new production line of 2.1 million tons each and some other additions of 1.8 million tons. Going forward, Lucky Cement with its 2 new lines of 1.26 million tons capacity each and Fauji Cement with its 2.1 million tons new line are expected to come online. With these additions and other expansions, the total industry installed capacity is expected to reach 49.1 million tons per annum by FY10.



Improved access to regional market

Afghanistan is Pakistan’s largest cement export market. The prospects for cement exports seem bright in the medium term due to rising domestic as well as regional cement demand. Pakistan also achieved improved access to India after the complete removal of the 12.5 percent custom duty on Portland cement imports in this country from January 2007, showing improved export opportunities for Pakistan. India is planning to import more cement from Pakistan to stabilise prices in the market and the government wants a balance in demand and supply of cement in the current fiscal year.

The import of cement from Pakistan has increased manifold during last four months. India has registered a number of Pakistani cement manufacturers, a requirement to facilitate import of cement. Pakistan has already increased the frequency of trains from one to three in a week to carry cement from Pakistan to Wagah border. Due to boom in the construction industry, India needs cement in bulk to meet its growing needs.

Where Pakistani cement companies have excess cement production facilities, India is facing shortage in cement. This has become a boon for Pakistan. Currently, Pakistani cement is exported to Middle East, Africa, Afghanistan and India. The exports for FY08 have already surpassed the last whole year’s export of 3.19 million tones and are likely to reach to 6.67 million tones in 2008.

Sources of coal to Pakistan cement industry

According to estimates prepared by the Geological Survey of Pakistan (GSP), Pakistan has total coal reserves of 185 billion tons, out of which 184 Province Resources Million Tons Billion tons are in Sindh – one of Balochistan 217the biggest good quality lignite Punjab 235deposit in the World. Sindh 184,623

NWFP 90Azad Kashmir 9 Total 185,173


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Province Ressources Million Tons StatusBalochistan : Hamai 76 Dev Sor Range-Degari 50 Dev Duki 50 Dev Mach-Abegum 23 Dev Pir Ismail Ziarat 12 Dev Bar khan – Chamalang 6 Dev

Sub-Total 217PUNJAB:

Salt Range 213 Dev Markawal 22 Dev Sub-Total 235SINDH:

Thar Coal 175,506 Non Dev Sonda-Thatta 3,700 Non Dev Indus East 1,777 Non Dev Jherruck 1,823 Non Dev Lakhra 1,328 Dev Ongar 312 Non Dev Meting – Jhimpir 161 Dev

Badin 16 Non Dev

Sub Total 184,623NWFP:

Hangu / Orakzai 82 Cherat / Gulla Khel 9 Dev

Sub Total: 90 Dev Azad Kashmir: Kotli 9

Sub Total: 9 Dev Total 185,173

Energy year Book, 2003-04

Coal is found in all the four provinces of Pakistan. The country has huge coal resources, about 185 billion tonnes, out of which 3.3 billion tonnes are in proven/measured category and about 11



billions are indicated reserves, the bulk of it is found in Sindh. At present most of the cement companies have switch to coal or gas as their basic fuel; the process has been completed in the last 6 to 7 years. According to the data of the All Pakistan Cement Manufacturing Association of mid-2007, the cost of cement production per tonne by furnace oil was around Rs2,083 whereas the cost of production per tonne by coal was Rs8,68, saving Rs1,215 per tonne. Similarly, the saving per bag was Rs60.75, which is a huge difference.

CEMENT PROCESS• Cement acts as a binding agent, holding particles of aggregate together to formconcrete.• Cement production is highly energy-intensive process and involves the chemicalcombination of calcium carbonate (limestone), silica, alumina and smallamounts of other materials.• Burning limestone to make clinker produces cement, and the clinker is blendedwith additives and then finely ground to produce different cement types. Desiredphysical and chemical properties of cement can be obtained by changing the

percentages of the basic chemical components (CaO, Al2O3, MgO, SO3, etc)

Cement production involves the following stages:



Using the any of the following process produces cement- Wet Process- Semi-dry Process- Dry process• In the Wet Process, raw material is fed into kiln in slurry form thus energyconsumption is high. In the dry process, the ground raw materials are fed intokiln in powder form and energy consumption is comparatively lower to raise thetemperature to the required level.• Cement plants established in 60s and 70s were based on wet process, whereas

the plants established in 80s/90s are based on dry process.

Rank of Pakistan in Cement Export:

Pakistan has already joined the world club of cement exporters, with 48th ranking among a total of 116 exporting countries, having attained recently an export figure of USD 33.24 million. Some of the big players from Pakistan who can possibly play a major role in the export of cement to India are Lucky Cement, the largest cement producer in the country, DG Khan Cement

Co, Bestway Cement, Maple Leaf Cement, Attock Cement, among others.



Cement Consumption in Pakistan: The resumption of countrywide construction activities after the winter spell has skyrocketed the local consumption of cement to 63 percent higher than last January.

The construction activity has shot up both in public and private sectors besides the Northern Areas, and the cement demand has received a sudden jump.

The industry sources are expecting further rise in consumption in the days to come while disagreeing with the impression that the cement prices would touch again the highest-ever figure of Rs 400 per 50 kg bag.

However, some circles are also carrying an impression that the cement manufacturers and the cement dealers have formed a cartel to create an artificial shortage of cement in the market with the rise in demand.

But according to the All Pakistan Cement Manufacturers Association (APCMA), local dispatches during January 2007 rose to 1,853,487 metric tonnes against 1,141,443 of January 06, registering a phenomenal growth of 63 percent.

Similarly, the cement exports during January 07 have risen to 244,886 metric tonnes against 47,282 metric tonnes during January 06. Resultantly, the total dispatches have reached to 2,098,373 metric tonnes in January 07 against 1,188,725 metric tonnes in January 06, registering a growth of 76.52 percent.

As far as July 06-Jan 07 figures are concerned, the local dispatches are recorded at 11,829,260 metric tonnes against 9,122,447 metric tonnes in the corresponding period, showing an increase of 30 percent. On the exports front, the total dispatches during July 06-Jan 07 have reached to 1,447,580 metric tonnes against 822,730 metric tonnes in the corresponding period. The total dispatches during July 06-Jan 07 have recorded a phenomenal growth of 33.50 percent, as it remained 13,276,840 metric tonnes in July 06-Jan 07 against 9,945,177 in July 05-Jan 06. Per capita cement consumption in Pakistan had increased from 75 to 120kg, but it was still far below the 1,780kg per capita consumption countries like Korea.

The industry sources believe that the opening up of roads to the Northern Areas has given a boost to the construction activities there. Similarly, they added, the public sector construction work has also registered a phenomenal growth with the end of the half fiscal and the upcoming general elections. According to them, the demand from the government contractors is rising with



every passing day.An increase in local demand can be assessed with the simple fact that dispatches from the cement factories were recorded at 84,000 metric tonnes on Feb, followed by 55,000 tonnes on Feb 4 and 60,000 metric tonnes on Feb 5.

“This year again could be critical for the industry like the previous one,” said one cement manufacturer. However, a few others believe otherwise. According to them, the production capacity of the sector has risen to 15 million tonnes per annum, from 18 million tonnes per annum in July 2005 to 33 million tonnes in Jan 2007, therefore no big gap in supply and demand is expected. The prices would therefore be within the reach of the common man, they added.

These circles have also expressed the view that the recent increase in price (which reached at Rs 250 per 50 kg bag within a few days) would be cooled down soon. However, they have disagreed with the impression that the manufacturers of the dealers have formed any cartel, as they said, the cement manufacturers are lacking the harmony in their approach like the year earlier.



SWOT ANALYSIS:

Strength

Cement export to India through railway

Most of the cement export to India is through railway. In order to facilitate cement export to India, the railways has doubled its cement capacity and increase its frequency of trains to India from Pakistan. This step has been taken by Pakistan Railways in order to increase cement export to India. Which is regarded as a highly profitable market.

Use of Coal:

Coal is found in all the four provinces of Pakistan. The country has huge coal resources, about 185 billion tonnes, out of which 3.3 billion tonnes are in proven/measured category and about 11 billions are indicated reserves, the bulk of it is found in Sindh.

At present most of the cement companies have switch to coal or gas as their basic fuel; the process has been completed in the last 6 to 7 years. According to the data of the All Pakistan Cement Manufacturing Association of mid-2007, the cost of cement production per tonne by furnace oil was around Rs2,083 whereas the cost of production per tonne by coal was Rs8,68,saving Rs1,215 per tonne. Similarly, the saving per bag was Rs60.75, which is a huge difference. Reserves of coal can become a strength for Pakistani cement industry if Pakistan import sulphur washing plant from European country than Pakistan cement industry is able to utilize local coal to meet its energy requirement

Cheaper labor:

The labor of Pakistan is very cheap. This is the important strength of the cement industry as the cement companies of Pakistan has to pay less to there labor which result in saving of there income which later on can be utilized in the expansion of cement plant. Which will increase the cement production

Good Domestic and Forgien Market :

The export may reach to $ 500 million increase during 2008. Data for the first quarter of FY08 shows that Afghanistan is Pakistan’s largest cement export market. The prospects for cement exports seem bright in the medium term due to rising domestic as well as regional cement demand.



Good Government Policies:

Government policies are in the favour of cement sector. Due to the government favourable policies the cement sector gets the highest growth rate of 21.11% among all the industries of pakistan in year 2006-07. The total industry installed capacity is expected to reach 49.1 million tons per annum by FY10

High Quality of Cement:

Pakistan produces good quality of cement. This is the main reason due to which recently Russia is offering high price for Pakistani cement. Globally Pakistan is recognized for producing good quality of cement due to which countries like Afghanistan, India, Middle east and some African countries prefer to import cement from Pakistan.



Weakness:

Increase freight charges:

Exporters of the cement often complain that railways freight charges for carrying cement from Lahore city to the border of India are Rs500 per ton ($8 per ton) while it covers only 35 km. Against this, they say on the Indian side, the freight is only $3 per ton for bringing goods from Chundrigar to the border area.

Cement exports have been badly hit by high fee that is being charged by trucks and also by foreign shipping companies for the haulage of cement from Pakistan to India. This increase in freight charges effect our exports due to which our exports is declining

Logistic Problem

Some of the cement companies of Pakistan have received orders from Russia with a price tag of Rs 860 per bag. But our logistics is the biggest hurdle in the way as our transportation system is not good enough to transport cement to Russia due to which our cement companies might lose the chance to capture the Russian market which is a highly profitable market.

Usage of Paper bag:

Pakistani cement companies export there cement in paper bags because paper bags are cheap as compared to plastic bags. But the Cement exported in paper bags is against the International standards and companies have to pack the cement in plastic bag. The cement export to India could be affected by the shortage of plastic bags used for transporting the commodity. Although there are two companies that are manufacturing plastic bags for cement but they are not able meet the demand. So that’s why Pakistan cement companies export cement in paper bags.

Idle capacity of various players:

The biggest problem of cement industry is the idle capacity of various players. As many cement players are not operating at there full capacity.

2006 2007 2008D G Khan 10% 39% 39%Fauji 12% 27% 30%Lucky 12% 39% 43%Maple Leaf 10% 37% 42%Pioneer 10% 38% 40%


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Attock 06% 37% 42%Industry Average 17% 41% 45%

Opportunities

Government Development Expenditure

Government development expenditures count for one third of total cement consumption. Increase in development expenditures has helped cement demand to grow at very high rates. Increase in PSDP- as announced in Medium Term Development Framework 2005-10 – made the cement demand to grow in the country. Infrastructure development in a region triggers private development projects having even positive impact on cement demand.

Construction of large dams

Construction of four large dams will generate demand of 3.7mn tons as construction activities start. Our estimate does not include demand generation from Skardu-Katzarah dam as its feasibility study in not yet completed. Extent of demand generation will depend on size of dam, type of dam, and extent of relocation/resettlement activities required.Bhasha dam will generate maximum demand as it is RCC concrete dam whereas other dams being Earthfill/Rockfill dams will require less cement for their construction.Resettlement activities for Kalabagh dam will generate maximum demand as it is located in a highly populated area.

Improved access to regional market

Afghanistan is Pakistan’s largest cement export market. The prospects for cement exports seem bright in the medium term due to rising domestic as well as regional cement demand. Pakistan also achieved improved access to India after the complete removal of the 12.5 percent custom duty on Portland cement imports in this country from January 2007, showing improved export opportunities for Pakistan. India is planning to import more cement from Pakistan to stabilise prices in the market and the government wants a balance in demand and supply of cement in the current fiscal year. The import of cement from Pakistan has increased manifold during last four months. India has registered a number of Pakistani cement manufacturers, a requirement to facilitate import of cement. Pakistan has already increased the frequency of trains from one to three in a week to carry cement from Pakistan to Wagah border. Due to boom in the construction industry, India needs cement in bulk to meet its growing needs.

Demand of Pakistani cement by Russia

Fresh enquiries have been received from Russia and buyers are quoting very attractive prices as Pakistani cement quality is of very high standard and holds good strength.



Earthquake in China

In the month of May china is hit by severe earthquake having the magnitude of 7.8 this earthquake has cause the serious destruction in china. This disaster is also an opportunity for Pakistan cement industry to export cement to china.

High prices of cement in the international market

Cement exports are expected to soar by a massive 107 per cent due to the primary source of overall cement growth in FY08, the high exports owing to the cement supply shortage in India and Middle East which lead to rocketing cement prices in the region.

Increase in demand of cement due to the up coming sports event

South Africa is schedule to host the football world cup of 2010 due to which they need to make the football stadiums for the World Cup and Sri Lanka are also expected to approach Pakistani companies for cement imports because sri lanka to co-host the cricket world cup of 2011.



Threats

Indian and Iran industry is also expanding its cement capacity

Presently, India faces an acute cement shortage in its Southern states of Tamilnado and Madras and in north Punjab. However, reports indicated that the Indian industry is also working on a fast track to expand their capacity in these regions to off-set the shortfall 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.

High energy prices

Recently cement industry of Pakistan is facing high energy prices due to increase in the international prices of coal and oil. As our coal contain high percentage of sulphur. Due to which Pakistan cement industry is not able to use local coal as a source of energy. Due to which Pakistan cement industry has to import coal from different countries at high prices.

High finance and depreciation cost

As Pakistan cement industry is expanding its capacity to get the proper advantage of strong demand of cement in different countries. The total industry installed capacity is expected to reach 49.1 million tons per annum by FY10 and because of higher expansion finance and depreciation cost is also going to rise by the FY10.

Decrease profitability due to competition in cement industry

The sharp decline in cement prices has been witnessed due to domestic competition among producers has dampened the profitability of the industry. This increase in competition among the players have further decreased the prices of cement in the local market. The cement manufacturers decrease the prices of there products in order to get high market as compared to its competitor.

High level of taxation

Presently, the cement industry of Pakistan is heavily burdened due to levy of Federal Excise Duty @ Rs. 750 per ton and General Sales Tax @ 15% on duty paid value. In addition to Federal Excise Duty and General Sales Tax, cement industry is also paying the provincial levies (Royalty and Excise Duty) on acquiring of raw material for production of cement i.e. lime stone and shall clay.



Per ton cost impact of these taxes in four provinces of Pakistan is as follows:

Punjab NWFP Sindh Baluchistan

Lime Stone 24 21 17 65

Shall/Clay 3 4 3 11

A comparison of taxation and retail prices with other regional countries revealed that taxation in Pakistan is highest while cement retail prices are lowest.




Documents

Pakistan Cement Industry