PSDP, CPEC with private housing schemes likely to push and growth and development of the sector
Huge rising demand encouraged cement manufacturers to invest Rs254 billion for expansion of their production capacities from 49.4 million tons to 72.8 million tons in the next few years. Investment in various infrastructure projects under Public Sector Development Program (PSDP) and China-Pakistan Economic Corridor (CPEC), combined with demand from private housing schemes have encouraged development of cement sector.
The cement industry is experiencing a bulk transformation, as a number of cement industrialist are planning capacity expansions. There are 24 manufacturing units operating in the country with a total installed annual capacity of 49.4 million tons. About 3 million tons capacity has already been added during fiscal year 2018. It is predicted that in aggregate terms, the cement sector production capacity will increase by about 50 percent in the next couple of years. The SBP estimated that additional capacity would result in the imports of machinery of around about Rs 178 billion over next few years. In the cement industry, cost of machinery imports comes around 70 percent of total cost of the project.
The normal profit is another significant factor that helped the industry to go through capacity expansion. The gross profit to sales ratio averaged around 33 percent for the last five years. The cement industry gained from a plummet in global market for raw material like POL and coal and low domestic interest rates.
The cement industry improved when, instead of passing on the gain to consumers, firms increased the local retail prices. In addition benefits to industry were achieved due to the economies of scale, improvement in cost efficiency, and a reduction in the debt-to-equity ratio.
A number of firms diversified their operations towards other sectors of the economy as well. Due to healthy cash position, industry’s borrowing needs increased. Cement sector had Rs34 billion for fixed investment purposes during July 2016 till March 2018. The prevailing low interest rates encouraged firms to borrow more from the banking system. On the export side, with induction of cheap Iranian cement in Afghanistan and imposition of anti-dumping duties on Pakistani cements in South Africa (the two main export destinations), exports may remain a challenge.
The cement manufacturers will have to compete with Iranian and Chinese cement manufacturers through improvement in cost efficiencies, it suggested. There is a need to explore new markets to utilize their excess capacities. Efforts in this regard could also increase export earnings in coming years.
Domestic sales of cement recorded a strong average growth of 12.6 percent during fiscal year 2017. This trend also continued in fiscal year 2018 where July-April growth stands at 17.5 percent on the back of strong domestic demand.
Cement expansions announced during 2016 and 2017 are officially on the road. Lucky Cement secured its leadership position end of 2017 with a 1.3 million tons brownfield expansion at its Karachi plant.
Attock cement added 1.2 million tons to its Hub Balochistan plant. DG Khan Cement announced its own greenfield facility in Hub of 2.8 million tons. Bestway Cement that was acquiring Dewan Cement but shelved those ideas announced its own 1.8 million tons of brownfield expansion at its Farooqia plant. The planned expansions are expected to rise to 75 million tons by 2020.
Maple Leaf, Pioneer, Power cement will come next year. Lucky is also expecting its expansion at the Pezu Plant (2.6 million tons). It will continue to be market leader well into the next few years.
The industry is currently growing by 15 percent, and if it continues to grow at this rate year on year. By 2020 when all the expansions will come into play, the industry will still be at 81 percent capacity utilization.
The cement sector has observed the cement price fluctuate as supply grew especially in the north. It seemed much of the expansions in the region will be halted due to an environmental case filed against some players.
[ads1]
The financial budget has continued to raise FED on cement bags, and cement manufacturers pass this on to consumers. Prices have been raised between Feb-June 2018 by 8 percent; 3 percent of which came about in just the past month.
Facing idle capacity, many manufacturers in the north were selling cement at discount prices to keep their plants at a good level of utilization. Cement manufacturers have seen their margins down not only in the face of falling retention prices, but also the rising cost of production mainly with coal price hikes globally.
Trend is expected to carry well into fiscal year 2019. Global demand for coal is growing but China is expected to restrict supply in its new search toward environmental sustainability. This will raise coal prices up.
Cement is always considered as a yard stick of advancing in developing country and is rightly taken as an important economic activity indicator.
Cement industry is progressing at a very fast pace in Pakistan. At the time of inception, there were only four cement plants in Pakistan with an annual capacity of 300,000 Metric tons. Cement industry has grown to 29 units with annual capacity of 45 Million tons.
China has agreed to invest 42 billion US $in infrastructure development of Pakistan. The major projects include roads (Khunjrab – Gawadar Highway – 2,400 KM), (Karachi – Lahore motorway – 1,060 KM), rails, ports (Gawadar port), Dams (Dassu & Bhasha dam), energy and special economic zones.
CPEC will have an imperative impact on country’s economy and it would change our country into an investment paradise. It will benefit all the far flung areas of Pakistan and it will also provide extensive employment opportunities to the local residents. Gilgit Baltistan alone with around 50,000 MW capacities can help the country to overcome the energy crises. It will be a cheapest and pollution free source of electricity.
Bhasha Dam is the main projects in offing. This is the time for the government as well as private sector to exploit the gigantic power production potential in Pakistan.
Cement projects underway
Pakistan has eight brownfield cement projects underway. China-based Sinoma is currently building a 1.9Mta plant for Bestway Cement at a cost of PKR18.9billion and about 55 percent of the work has been carried out to date
The eight brownfield cement projects with a total capacity of 18.8Mta are at various stages of completion and scheduled to be commissioned between June 2019 and June 2020 at an estimated cost of over Rs159 billion (US$1.37 billion) in Pakistan. So far, all the projects have completed, on average, at least 46 percent of their construction.
China-based Sinoma is currently building a 1.9Mta plant for Bestway Cement at a cost of Rs18.9 billion and about 55 percent of the work has been carried out to date. Sinoma is also constructing Pioneer Cement’s 2.5Mta plant at a cost of PKR19.89bn. Approximately, 42 percent of this project has been completed.
A 2.5Mta plant for Gharibwal Cement is being built by another Chinese company, CTIC, at a cost of Rs19.89 billion. Some 12 percent of the work has been carried out. Denmark-based FLSmidth is adding 2.3Mta of capacity to Maple Leaf Cement. The Rs23 billion project has been completed for around 51 percent. FLSmidth is also building Power Cement’s 2.4Mta plant at a cost of Rs24.26 billion with completion at the 34 percent mark.
Further Lucky Cement’s 2.6Mta project is being brought forward and is estimated to cost Rs17.5 billion. Cherat Cement’s 2.1Mta plant is being built at a cost of Rs16.81 billion. About 48 percent of work has been completed.
Kohat Cement is investing Rs18.47bn in a 2.3Mta plant, for which seven percent of the work has been carried out. As of 2018, Pakistan has a total production capacity of 49.44Mta of cement.