Pakistan Cement Industry

Analysis Of Cement Industry Of PakistanAPI Report

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.

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Analysis Of Cement Industry Of PakistanAPI Report

Install Capacity 40 35 30 25 20

Capacity

15 10 5 0 2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

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.

No. Of operational units Install Capacity (million tons) Domestic Consumption (million tons) Export (million tons) Capacity Utilization %

2001-02

2002-03

2003-04

2004-05

2005-06

22

22

23

24

26

2006-07 (Jul-Mar) 29

15.72

16.32

16.93

17.90

24.30

36.841

9.83

10.98

12.54

14.78

16.85

16.98

0.107

0.43

1.118

1.565

1.505

2.13

62.5

67.2

74.0

82.5

84

76.38

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Analysis Of Cement Industry Of PakistanAPI Report

Number of Units (Grey Cement) North Zone South Zone Total

19 10 29

Numberof Units

20 18 16 14 12 10 8 6 4 2 0

North Zone

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South Zone

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Analysis Of Cement Industry Of PakistanAPI Report

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)

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Analysis Of Cement Industry Of PakistanAPI Report

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

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Analysis Of Cement Industry Of PakistanAPI Report

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 PRODUCTION 1 Fuel Oil , Natural Gas and Coal 2

Electricity

3

Water

ANNU AL CAP ACIT Y, NO OF LINE S, YEAR OF COM MIS SION & PR OCE SS

Sr.

Name of Unit

No.

2005 Annual Capacities

BMR/N ew

2011 Upgraded Capacity

No. Proce Provi of Year of Year of ss nce Line Commiss upgrada Clinker Cement Clinker Clinker Cement Age s ion tion %

Askari 1 (Wah)

1,050,00 1,102,50 2.22 900,000 945,000 150,000 0 0 %

1

1994

Askari 2 (Nzp)

1,200,00 1,260,00 1,500,00 1,575,00 3.18 0 0 300,000 0 0 %

1

1995

Aug-06 Dry

N.W.F. P

Bestway 3 (Hat)

0

990,00 1,039,50 1,170,00 1,228,50 2.48 0 180,000 0 0 %

1

July, 1998

Jul-05 Dry

N.W.F. P

Bestway 4 (K.K)

-

1

July, 2006

-

1,725,0 1,725,00 1,811,25 00 0 0

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Jan-06 Dry Punjab

Dry Punjab

Analysis Of Cement Industry Of PakistanAPI Report

New (K.K)

5

Cherat

6

D.G.Khan

-

-

1,725,0 1,725,00 1,811,25 00 0 0

-

-

3,450,0 3,450,00 3,622,50 7.31 00 0 0 %

1

July, 2008

1

July, 1985

1

April, 1986

Jul-05 Dry Punjab

1

June, 1998

Oct-05 Dry Punjab

2,010,0 2,010,00 2,110,50 4.26 00 0 0 %

1

14-May-07

Dry Punjab

1.02 %

1

April,1986

Dry Punjab

1,165,5 00

1

Nov, 1997

Aug-05 Dry Punjab

2,010,0 2,010,00 2,110,50 00 0 0

1

1-Aug-10

Dry Punjab

1

Dec, 1988

May-06 Dry Punjab

180,000 189,000

1

Sep, 1964

Wet Punjab

750,000 787,500 240,000 990,000

1,039,50 2.10 0 %

Old Line 660,000 693,000 150,000 810,000 850,500 New Line

1,039,50 1,200,00 1,260,00 990,000 0 210,000 0 0

Dry Punjab

Aug-06 Dry

N.W.F. P

1,650,00 1,732,50 2,010,00 2,110,50 4.26 0 0 360,000 0 0 % D.G.Khan 7 (k.K)

-

-

8

Dandot

480,000 504,000

9

Fauji

1,110,00 900,000 945,000 210,000 0

New Line -

-

-

480,000 504,000

2,220,0 3,120,00 3,276,00 6.61 900,000 945,000 00 0 0 % 10 Fecto

600,000 630,000 180,000 780,000 819,000

11 GharibWal 180,000 189,000

New Line

-

1.65 %

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

1

Jan-08

Dry Punjab

-

-

2,010,0 2,010,00 2,110,50 00 0 0

2,010,0 2,550,00 2,677,50 5.40 540,000 567,000 00 0 0 %

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Analysis Of Cement Industry Of PakistanAPI Report

12 Kohat

540,000 567,000

New Line

-

-

-

540,000 567,000

2,010,0 2,010,00 2,110,50 00 0 0

1

April, 1983

Dry

N.W.F. P

1

Jul-07

Dry

N.W.F. P

2,010,0 2,550,00 2,677,50 5.40 540,000 567,000 00 0 0 % 13 Lucky

628,571 660,000 91,429 720,000 756,000

1

628,571 660,000 91,429 720,000 756,000

1

June, 1996 June, 1996

Jul-05 Dry

N.W.F. P N.W.F. P

Jul-05 Dry

New Line I

-

-

1,142,8 1,142,85 1,200,00 57 7 0

1

Sep-05

Dry

N.W.F. P

New Line II

-

-

1,142,8 1,142,85 1,200,00 57 7 0

1

Sep-06

Dry

N.W.F. P

1

1956

Wet Punjab

0

Wet Punjab

1

1960 March,198 8

1,039,50 1,200,00 1,260,00 New Line 990,000 0 210,000 0 0

1

April, 1998

Aug-06 Dry Punjab

2,010,0 2,010,00 2,110,50 00 0 0

1

Jun-07

Dry Punjab

1,257,14 1,320,00 2,468,5 3,725,71 3,912,00 7.89 3 0 71 4 0 % 14 Maple Leaf Old Line

120,000 126,000

"

171,000 179,550

-

"

180,000 189,000

-

New Line

-

-

-

120,000 126,000 -

-

180,000 189,000

Wet Punjab

1,461,00 1,534,05 2,220,0 3,510,00 3,685,50 7.43 0 0 00 0 0 % Mustehku 15 m

-

-

165,000 165,000 173,250

1

1965

Wet

-

-

165,000 165,000 173,250

1

1965

Wet

-

-

300,000 300,000 315,000

1

1981

Dry

-

-

630,000 630,000 661,500

1 1

October,1 994 May, 2006

16 Pioneer 600,000 630,000 105,000 705,000 740,250 New Line 1,228,5 1,228,57 1,290,00

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N.W.F. P N.W.F. P N.W.F. P

1.33 % Jul-05 Dry Punjab Dry Punjab

Analysis Of Cement Industry Of PakistanAPI Report 71

1

0

1,333,5 1,933,57 2,030,25 4.10 600,000 630,000 71 1 0 %

17 Pakistan New Line

Dewan 18 Hattar

-

-

2,010,0 2,010,00 2,110,50 00 0 0

1

July, 2006

Dry Punjab

-

-

2,010,0 2,010,00 2,110,50 00 0 0

1

July, 2010

Dry Punjab

-

-

4,020,0 4,020,00 4,221,00 8.51 00 0 0 % 540,000 567,000

1

Feb-02

Dry

540,000 540,000 567,000

1

Jul-05

Dry

600,000 630,000

1

Jan-05

Dry Punjab

600,000 600,000 630,000

1

Nov-06

Dry Punjab

540,000 567,000 -

-

-

N.W.F. P N.W.F. P

1,080,00 1,134,00 2.29 540,000 567,000 540,000 0 0 % 19 Flying

600,000 630,000 -

-

-

1,200,00 1,260,00 2.54 600,000 630,000 600,000 0 0 %

19

13,008, 13,658,5 24,922, 37,759,2 39,647,2 79.97 SUB TOTAL 143 50 142 86 50 % 38

SOUTH ZONE Name of Sr. Unit No.

Annual Upgrated No. Proce Capacities BMR capacity % of Year of Year of ss Province Clinker Cemen Clinker Clinke Cemen Age L Commis upgradt t r t ine sion ion

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Analysis Of Cement Industry Of PakistanAPI Report s 20 A.C.Rohri 50,000 52,500

21 Attock.

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%

720,000 756,000 -

720,000 756,000

1

1988

Dry

Baluchistan

1,039,5 00

1

Jun-06

Dry

Baluchistan

504,762 530,000 1.07% 1

1985

Dry

Sind

New Line -

-

-

990,000 990,000

720,000 756,000 990,000 Dadabho 22 y 504,762 530,000 -

1,710,0 1,795,5 00 00 3.62%

Al-Abbas 23

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

1,200,0 1,260,0 00 00 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

-

-

-

1,142,85 1,142,8 1,200,0 7 57 00

1

May, 2006

Dry

Sindh

-

-

1,142,85 1,142,8 1,200,0 7 57 00

1

Nov-06

Dry

Sindh

-

2,285,71 2,285,7 2,400,0 4 14 00 4.84% 1

1985

Dry

Sind

1

Oct-08

Dry

Sind

26 Pakland 750,000 787,500 New Line -

-

750,000 787,500

720,000 720,000 756,000 3.11%

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Analysis Of Cement Industry Of PakistanAPI Report

750,000 787,500 720,000 Pakistan 27 Slag

157,500 0.32% 1

1994

Dry

Sind

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

28 Thatta

-

157,500 -

1,470,0 1,543,5 00 00

300,000 315,000 -

1,008,0 1,058,4 00 00

-

-

1,008,0 1,058,4 00 00 2.13%

10

SUB TOTAL

4,562,7 4,948,4 4,745,71 9,308,4 9,931,4 20.03 62 00 4 76 00 % 22

29

GRAND 17,570, 18,606, 29,667, 47,067, 49,578, 100.0 TOTAL 905 950 856 762 650 0% 60

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Analysis Of Cement Industry Of PakistanAPI Report

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Analysis Of Cement Industry Of PakistanAPI Report

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-February08 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 cement export, with a view to increase overall export volume. These measures will immensely help in promoting and protecting high investments made in cement sector in recent years. In the wake of its huge 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, on the other, explore new markets.

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Analysis Of Cement Industry Of PakistanAPI Report

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

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Analysis Of Cement Industry Of PakistanAPI Report

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.

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Analysis Of Cement Industry Of PakistanAPI Report

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 217 the biggest good quality lignite Punjab 235 deposit in the World. Sindh 184,623 NWFP 90 Azad Kashmir 9 Total 185,173

Province Balochistan : Hamai Sor RangeDegari Duki Mach-Abegum Pir Ismail Ziarat Bar khan – Chamalang Sub-Total PUNJAB:

Ressources Million Tons 76 50

Dev Dev

50 23 12 6

Dev Dev Dev Dev

217

Salt Range Markawal Sub-Total SINDH:

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Status

213 22 235

Page 16

Dev Dev

Analysis Of Cement Industry Of PakistanAPI Report

Thar Coal Sonda-Thatta Indus East Jherruck Lakhra Ongar Meting – Jhimpir Badin Sub Total

175,506 3,700 1,777 1,823 1,328 312 161

Non Dev Non Dev Non Dev Non Dev Dev Non Dev Dev

16

Non Dev

184,623

NWFP: Hangu / Orakzai Cherat / Gulla Khel Sub Total: Azad Kashmir: Kotli

82 9

Dev

90

Dev

9

Sub Total: Total

9 185,173

Dev

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 form concrete. • Cement production is highly energy-intensive process and involves the chemical combination of calcium carbonate (limestone), silica, alumina and small amounts of other materials. • Burning limestone to make clinker produces cement, and the clinker is blended with additives and then finely ground to produce different cement types. Desired physical 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:

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Analysis Of Cement Industry Of PakistanAPI Report

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Analysis Of Cement Industry Of PakistanAPI Report

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 energy consumption is high. In the dry process, the ground raw materials are fed into kiln in powder form and energy consumption is comparatively lower to raise the temperature 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

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Analysis Of Cement Industry Of PakistanAPI Report

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.

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Analysis Of Cement Industry Of PakistanAPI Report

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

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Analysis Of Cement Industry Of PakistanAPI Report

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.

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Analysis Of Cement Industry Of PakistanAPI Report

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

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Analysis Of Cement Industry Of PakistanAPI Report

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. D G Khan Fauji Lucky Maple Leaf Pioneer Attock Industry Average

2006 10% 12% 12% 10% 10% 06% 17%

2007 39% 27% 39% 37% 38% 37% 41%

2008 39% 30% 43% 42% 40% 42% 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 SkarduKatzarah 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. Bahria University Karachi

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Analysis Of Cement Industry Of PakistanAPI Report 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.

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Analysis Of Cement Industry Of PakistanAPI Report

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.

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Analysis Of Cement Industry Of PakistanAPI Report

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.

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