analysis of pakistani cement industry - a report - ravi magazine nationalization privatiaton
TRANSCRIPT
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 1/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 1/41
Home
People
Places
Poetry شاعری
Fiction افسانے
Music & Movies
Politics
Events
Culture
Religion
Food
Reports
Sports
PrivacyContact
Reports
0
Analysis of Pakistani Cement Industry – A Report
by Ravi Magazine · 16th April 2015
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 2/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 2/41
Cement Industry of Pakistan
Analysis of Pakistani Cement Industry – A Report
HISTORY
Cement industry is one of the few industries that existed in Pakistan before the partition of the sub-continent. The major reason for the existence of this industry is the availability of the raw materials.
Pakistan has inexhaustible reserves of limestone and clay, which can support the industry for another
50-60 years. The annual production of the cement at the time of the creation of Pakistan was only
300000 tones per year. By 1954 the production increased to 660000 tonnes per annum against a
demand of 1000000 tonnes per annum. At this time PIDC took initiative and established two cement
factories Zealpak (240,000 tonnes) and Maple Leaf (100,000 tonnes) having a capacity of 340000 tones,
thereby increasing the production to 1000000 tonnes per annum. Since then besides expansion of the
existing plants, new plants have also established. Besides producing OPC, the Pakistani cement industry
also started producing SRC, Slag cement and white cement.
In 1921 the first cement plant was established at WAH. At the time of independence in 1947 there were
four cement factories with an installed capacity of 470,000 tonnes per annum. These units were located
at Karachi, Rohri, Dandot and WAH. In 1956 PIDC established two plants at Daudkel and Hyderabad and
subsequently more plants were established in the private sector.
NATIONALIZATION
The industry was nationalized in 1972 and the State Cement Corporation of Pakistan (SCCP) was
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 3/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 3/41
established following the Economic Reforms Order, 1972. As a result of nationalization, a total of 10
cement units with an installed capacity of 2.8 million tonnes per annum were transferred to the SCCP.
Effective price control was also vested with the SCCP and for a long time the industry operated under a
regime of strict regulation and price control. While the cement industry was working under the state
control, the SCCP established five new units with an installed capacity of 1.8 million tonnes per annum.
For the next fifteen years no new cement plant was established under the private sector, which resulted
in acute shortage of cement in late 70s and early 80s. This gap was filled by the import of cement. Severe
shortage of cement and price deregulation prompted the private sector to establish more plants. Seven
units were established in the private sector before commencement of the process of privatization in
1991.
PRIVATIZATION/ DEREGULATION
During the regime of Nawaz Sharif the industry went through major transformation. As a part of its
privatization policy, the Government of Pakistan, has privatized 8 cement plants since 1992. Due to
privatization the SCCP lost its control over the prices of the cement and as a result new cement plants
were established under private sector. The units working under the SCCP control are old and inefficient
using “wet process” whereas the units established in the private sector are new, efficient and use “dry
process”. At present there are more than 28 cement plants in Pakistan with installed capacity of over
19.5 million tonnes per annum. The present demand for cement in Pakistan is around 9.5 million tonnes
per annum.
MANUFACTURING PROCESS
COMPOSITION OF CEMENT
Pakistan is a country rich in deposits of limestone, shale and gypsum, which are the main ingredients for
the production of cement. The mining costs for these deposits come to only about Rs. 100 per tonne or
approximately 6% of total manufacturing cost. Thus cement is an extremely “value-added” product and
must be given its due importance. The chemical composition of cement is as under:
1. CaO 70%
2. SiO2 23%
3. Al2O3 04%
4. FE2O4 03%
Gray cement manufacture consists of about 73% limestone and 25% clay. The amount of gypsum that is
added to the clinker may be taken at 4%. About 1.23 tones of limestone, 0.31 tones of clay and 0.04 tones
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 4/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 4/41
of gypsum are required for producing one tone of cement. In case of gas fired kiln about 50000 to 60000
cubic feet of gas is required for a tonne of cement. For the production of slag cement, blast furnace slag is
also used and for the production of sulphate resistant cement sand and iron ore are also used.
TYPES OF CEMENT
The five types of cement manufactured in Pakistan are
1. Ordinary Portland Cement (OPC)
2. Slag Cement.
3. Sulphate Resistant Cement (SRC)
4. Super Sulphate Resistant Cement (SSRC)
5. White Cement.
MANUFACTURING PROCESS
The manufacturing process can be of any of the 3 types:
1. Wet Process; an obsolete method of manufacturing due to poor kiln heating and large water
requirements.
2. Semi-Wet Process; not popular due to high levels of fuel and energy consumption and suited formaterials with extreme elasticity. Quite obsolete.
Dry Process; suitable for materials with low moisture content. Low fuel usage as compared to the
wet process, less maintenance requirements, higher kiln efficiency due to pre- heating facility and
low kiln setup and maintenance costs.
Two main methods of cement manufacturing are prominent, the dry process and the wet process. Dry
process now has almost replaced the wet process since wet process consumes high thermal energy fordrying the moisture. In dry process the rock is the principal raw material, the first step after quarrying is
the primary crushing. Mountains of rock are fed through crushers capable of handling pieces as large as
an oil drum. The first crushing reduces the rock to a maximum size of about 6 inches. The rock then goes
to secondary crushers or hammer mills for reduction to about 3 inches or smaller. It is then ground in ball
mill to fine powder with other ingredients like clay/iron ore/bauxite to create a combination of values for
silica/alumina/lime etc in the mixture. The ground powder is then sent to blending silos for uniform
mixing of components added during the grinding stage. This blended material is feed to the preheater /
calciner. The preheater is a group of cyclones placed over one another where in material comes down and
hot gases goes up heating the material and calcining it in the process.
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 5/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 5/41
The only difference between dry process and the wet process is that in the later on the crushed raw
material is ground with water to form the slurry. This slurry is then filtered and pumped to the kiln and
the rest of the process is exactly the same as that of the dry process.
SPECIFICATION
British standard Specification # 12 are followed in Pakistan. For a good quality cement initial setting time
should not be less than 45 minutes and the final setting time should not be more than 10 hours, all
existing cement plants in Pakistan meet these quality criteria.
IMPACT OF PROCESS ON COST
The process used has a major impact on the cost structure of the company. Using old and out-dated
forms of technology not only effect the overall quality of the final product but result in higher
maintenance costs, more replacement of parts etc. and the result is less competitive prices in both the
domestic and foreign markets. We can see that Indian cement is sold at lesser prices since they have
been able to cut back on their costs of production. This has been done by lowering energy costs via
reliance on coal rather than furnace oil for running and operating their processes.
MARKET SEGMENTATION
MAJOR PLAYERS:
The key players in the industry, which attained billion rupees mark (in sales) in 1998, are listed below:
Name of the Company Sales (in billions of Rupees)
Fauji cement 1.401
D.G. Khan Cement 1.045
Cherat Cement 1.302
Fecto Cement 1.098Dadabhoy Cement 1.000
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 6/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 6/41
MARKET SEGMENTATION
The cement market in Pakistan is divided into two zones: the North zone and the South zone. The North
zone includes Punjab, Azad Kashmir, N.W.F.P. and the upper region of Baluchistan. The remaining area of
the Baluchistan and entire Sindh constitute the Southern zone.
Historically the Northern zone has faced an under-supply situation while the Southern zone has
experienced over-supply situation. The demand of the Northern zone was used to be met by the
production of the Southern zone. After the establishment of new plants especially D.G. Cement (with a
capacity of over 1 million tonnes per annum) the Northern region has also become almost self sufficient
in the cement the province–wise distribution of cement plants is given below
The cement industry is very unevenly distributed in the country with a vast difference in capacity and
production as can be seen in the following tables. The number of plants is less than double in the south
zone as compared to those in the north but total production in the latter region is nearly 3 times that in
the former area. Even then all units charge the same price when in reality their technology, layout,
product range and efficiency differs. This implies a misuse of cartel power exerted by the APCMA.
Province# of
Units
Capacity
(Mil.Ton)
Portland
GraySlag White Total
Sindh 8 3.364 3,369 330 45 3,774
Punjab 12 7.894 7,894 – 30 7,924
NWFP 5 4.351 4,351 – – 4,351
Baluchistan 2 0.723 723 – – 723
Islamabad 1 0.990 990 – – 990
Total 28 17.312 17,327 330 75 17,732
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 7/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 7/41
SOUTH ZONE PLANTS
COMPANY LOCATION
CAPACITY
(million
tonnes/annum)
EFFECTIVE
CAPACITY (million
tonnes/annum)
REMARKS
Attock Hub 0.756 0.756 –
Javedan Karachi 0.630 0.315 Partially closed
Pakland Karachi 0.945 0.787 –
Dadabhoy Nooriabad 0.504 0.472 –
Essa Nooriabad 0.472 0.472 –
Thatta Thatta 0.315 0.315 –
Zeal Pak Hyderabad 1.058 0.567 Partially closed
ACC Rohri Rohri 0.241 – Wet plantclosed
TOTAL 4.921 3.648 –
COMPANY LOCATION
CAPACITY (million
tonnes/annum)
EFFECTIVE
CAPACITY (million
tonnes/annum)
REMARKS
AWT Wah Wah 0.945 0.945 –
D.G. Khan D.G. Khan 1.732 1.732 –
Maple Leaf Daud Khel 1.03 1.039Wet lines
closed
Pioneer Khushab 0.630 0.630 –
Dandot Dandot 0.504 0 Plant closed
Fecto Islamabad 0.630 0.630 –
Cherat Nowshera 0.787 0.787 –
Mustahkam Hattar 0.660 0 Plant closed
Kohat Kohat 0.567 0.567 –
Gharibwal Gharibwal 0.567 0.567 Wet Plant
Fauji Taxila 0.945 0.945 –
Lucky Pezo 1.260 1.260 –
Best Ways Hattar 1.039 1.039 –Askari Nizampur 0.630 0.630 –
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 8/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 8/41
TOTAL 12.43 10.771 –
PERFORMANCE
At present KSE has 21 companies in the cement sector on its list. Total paid up capital of these companies
stood at Rs. 15.584 billion and the net worth at Rs. 24.947 billion. Total sales of these companies stood
at Rs. 14.589 billion. At present all companies are showing losses. According to APCMA the industry as a
whole incurred a loss of Rs. 2.786 billion during six months period of 1998-99 as compared to Rs. 2.836
billion of 12 months period of last year.
An adverse development in the sector is the deterioration in the EPS. The total sales of all cement
companies have decreased from Rs. 15379 million in 95-96 to Rs. 13118 million in 96-97. The
accumulated loss incurred by the cement plants increased from Rs 1026 billion in 96-97 to Rs. 2.836
billion in 97-98. The poor performance of the sector is mainly due to the excess supply situation. All this
resulted in deterioration in the General index of share prices of cement as shown below
General Index of Share Prices
(1990-91 as base year)
Year Share prices
1994-95 496.82
1995-96 225.24
1996-97 146.56
1997-98 67.26
1998-99 68.41
1999-2000 66.37
The profitability of the sector was further affected by the increase in the prices of fuel power and
packaging material that consists 70-80 % of the total production cost. In the last budget the sales tax was
lifted and the excise duty was increased from 35-40% of the retail price. In order to provide support to the
industry the government allowed the export of cement via sea allowed draw back of 12.5%. The
permission to export 3 million tones of cement has given some breathing to the crisis stricken cementindustry.
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 9/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 9/41
DEMAND
The demand and supply situation in the cement industry has tilted sides during the last few years. Until
1996 there had been a shortage of supply as compared to the demand, but then there has been a
consistent demand shortage due to new units being set up, converting the sellers market into a buyers
market. The demand for cement has grown at a steady rate of 8% in the northern region while 4% in the
southern region. The way the new plants are being set up and the existing plants are undertaking
expansion. The demand and supply situation is bound to create surpluses.
Over the last ten years, cement consumption has grown unequally in the two marketing segments. The
pace of industrialization, infrastructure development and urbanization in the North has prompted a highergrowth rate of 7-10 % in the North as compared with 4% in the South.
50% demand comes from the private housing and real estate activity, while 40% comes from government
infrastructure projects. The industrial sector generates the remaining 10%. Private housing and real
estate activity have slowed due to a high inflation rate that has led to lower savings. This coupled with
fraudulent practices of the builders and real estate brokers has shattered the public’s confidence. In view
of the lack of government funds and regional disparities surrounding large infrastructure projects such as
Ghazi Barotha project, the cement demand is expected to remain low. Especially the government
expenditure in the construction sector has decreased by about 29%.
The present crisis in the cement sector first emerged in 1995. Until 1992, the government’s active control
over the cement sector through State Cement Corporation had dept private investment in the sector to a
minimum. This sale of state-owned units to private sector in 1992 led to price deregulation. The rising
margins attracted fresh private investment, which resulted in an exorbitant increase in capacity from 8.2
million tonnes in 1992 to 17 million tonnes in 1998. The huge addition in the capacity of the cementindustry is heavily responsible for the current strife in the cement sector of Pakistan. This increase in
capacity increased the competition between the producers, but with the rising cost of production they
couldn’t keep themselves competitive. The rising overheads could no longer be afforded in a tight
industry and eventually an industry with redundant capacity and heavy losses found its way into the
already troubled Pakistani economy.
The situation has further aggravated as demand failed to grow at the same pace at which it was growingat the time of starting of the new cement projects. The slowdown in the economy has led to a decline in
growth for the housing sector, which accounts for a major part of total consumption. The problem has
compounded by the decline in government development expenditure. As a result of all this the demand
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 10/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 10/41
has declined over the past few years.
SUPPLY
The supply of the cement became out of the control of the government with the privatization of the
government owned units in the early nineties. The demand for the cement was particularly high in the
eighties from the housing sector as the remittance form the Gulf was used to build homes by the
expatriate Pakistanis. Now with the changing scenario from the Gulf and a decrease in the trend of the
Pakistanis to heavily invest in real estate is changing the trend, resulting in serious decrease in demand of
cement. The serious mistake on the part of the cement manufactures to accurately estimate the demand
of the cement has hit hard on the cement manufactures. The result is the present scenario with excess
capacity and lack of demand.
The demand of the cement is now increasing at a much slower pace then it was before, now the supply of
the cement in the market is being controlled by the cartel of the cement makers association (APCMA).
Since its inception APCMA is deciding upon the price of the cement to be offered to the public. A
comparison of the demand and supply of the cement over the years is shown below:
YEAR 94-95 95-96 96-97 97-98 98-99
DEMAND 8.7 9.6 9.5 9.1 9.5
SUPPLY 8.3 9.5 9.6 9.8 10.4
The supply of the cement doesn’t exceed the demand of the cement by a big margin, but the capacity that
has been installed by the cement industry far exceeds the demand of the cement. Rather the cementcapacity is approximately double then the demand. Over and above that, the profitability of the industry
has been hit hard by the increase in the cost of inputs, which include furnace oil, power and packaging
material. These constitute about 60% of the total cost of production, which the producers have been
unable to pass to the consumers. Demand of the cement has a high correlation with a GDP, coefficient of
correlation found to be 93%.
Factors, which can possibly change the surplus position into a near equilibrium between demand and
supply, are:
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 11/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 11/41
APCMA actions to avoid price decline
Delay in implementation of planned additions and expansions
Efforts to export cement
Increase in demand if construction of huge mega-size projects starts.
CAPACITY UTILIZATION
The cement industry is very unevenly distributed in the country with a vast difference in capacity and
production as can be seen in the following tables. The number of plants in the North Zone is double in
number to those in the South Zone. The following two tables will give the zonal effective capacity,
percentage capacity utilization, consumption and the prevailing gaps between demand and supply in the
two production zones. It shows both the actual present scenario and future estimates. These tables give
the effective capacity of the operating unit in the cement sector.
NORTH ZONE (million tonnes)
YearEffective
Capacity
Capacity
Utilization
Local
ConsumptionSurplus/(Deficit)
1999-2000 10.771 75% 8.078 2.693
2000-2001 11.404 77% 8.805 2.599
2001-2002 11.404 85% 9.597 1.807
2002-2003 11.404 92% 10.461 0.943
2003-2004 11.404 100% 11.404 02004-2005 11.404 109% 12.429 (1.025)
SOUTH ZONE (million tonnes)
YearEffective
Capacity
Capacity
Utilization
Local
ConsumptionSurplus/(Deficit)
1999-2000 3.684 75% 2.763 0.9212000-2001 3.591 80% 2.901 0.690
2001-2002 4.158 73% 3.046 1.112
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 12/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 12/41
2002-2003 4.158 77% 3.200 0.958
2003-2004 4.158 80% 3.358 0.800
2004-2005 4.158 85% 3.526 0.632
As we can see from the above tables in the South Zone the surplus supply situation is expected tocontinue for as long as the next 5 years. Also capacity utilization is not estimated to reach even 90% much
less full capacity utilization of the plants. The question that then arises is what then is the reason for the
extensive expansion projects and the setting up of new plants when existing plant capacities create an
over supply situation before attaining full capacity levels of production. The reason lies in the growing
export potential for cement manufacturers and all of them want to capture a sizeable share before their
competitors do.
As per the figures available the total production of cement during the year 97-98 was about 9.8 million
tonnes as compared to production of 9.5 million tonnes production the preceding year. The total installed
capacity of all the 28 cement units in Pakistan comes to about 17.312 million tonnes. The actual
production of these units during 98-99 was about 10.3 million tonnes.
New projects are being undertaken in the cement sector. The capacity of these projects is estimated
somewhere between eight and nine million tonnes. The existing plants are also increasing their capacity,
which comes to about 4.030 million tonnes. Thus the total capacity of the existing and upcoming projects
would be as follows:
CAPACITY OF CEMENT PLANTS
Status No. Capacity (M. Tonnes)
Existing Plants 28 19.143
Expansion – 4.030
New Projects 9 9.670
INPUT COST STRUCTURE
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 13/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 13/41
PRICE OVERVIEW
The cement price has seen a very unrealistic trend over the past two years, where the price per kg of
cement has increased by about Rs. 2. Price of 50-kg bag rose from Rs. 140 in October 1998 to Rs. 240 in
January 1999. The APCMA (All Pakistan Cement Manufacturers Association) was directed by the
Monopoly Control Authority (MCA) to cut back on this unreasonable increase in prices and a show-cause
notice was issued. This increase in price by the APCMA was viewed as a monopoly practice. APCMA had a
standpoint that the previous price set at Rs. 140 was not justified by any means as the costs associated
have increased drastically leaving the operations almost impossible at the old prices.
The debate went on for a while and the APCMA failed to produce any valid explanations thereby earning apenalty imposed on them by MCA. Government of Pakistan, however, considered APCMA’s point valid and
assured them some relaxation in this concern.
Due to this drastic increase in prices, the construction sector was badly affected and turned down most
of its operations. The Association of Builders and Developers (ABAD) protested and demanded from the
government to cut the prices back to Rs. 140 per bag. They warned of Rs. 1 billion investment in housing-
sector going to waste if the issue was not resolved soon. As an immediate affect of the slowdown in
construction sector some 3000 to 4000 civilians went out of job.
MCA finally gave out its word on the issue and ordered a cut back to original price of Rs. 140 immediately.
The order, however, was challenged by APCMA in the court of law, and thus not observed.
The government has offered several incentives to the cement manufactures considering their demands
to be valid. MCA on the other hand is of the view that the prices of the inputs for cement manufacturing
have not increased after 1997, and thus there is no point to increase the prices. The present price isaround Rs. 228/bag.
A relationship of price to the cost is given in the figure.
COST STRUCTURE
The cement manufacturing involves several raw materials used in different proportions. The main raw
material consists of limestone, gypsum, silica etc. Each tonne of cement requires about 1.7 tonnes of
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 14/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 14/41
limestone (80 % by volume), gypsum, and silica. All these components of raw material are easily available
in Pakistan, therefore are cheap. Raw material has a very trivial share in the total cost structure and
therefore doesn’t affect it much either.
The other inputs include fuel (furnace oil), packaging, power (electricity), and other expenses. The major
part of the cost is claimed by fuel, power, and packaging, i.e. about more than 46 % of the total cost. Any
fluctuation in the prices of these three inputs has a very significant effect on the over all cost. A breakup
of different input cost in the overall cost structure of a 50-kg bag of cement is given below.
Items Rs. (per bag)
Raw material 4.46
Packing material 12.94
Fuel 28.59
Power 22.84
Salaries and Wages 7.25
Stores 4.15
Mfg. & Selling Overhead 7.61
Operating cost 87.84
Financial expenses 30.83
Total Cash Cost 118.67
Depreciation 20.05
Total cost per bag 138.72
Another important cost consideration is the process employed by the unit to produce cement. The
manufacturing process can be of any of the 3 types:
Wet Process
Semi-Wet Process
Dry Process
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 15/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 15/41
COST/PRICE RELATION
The cement manufacturers advocate their point based on the increase in the prices of inputs. According
to APCMA, the increase in cement prices is attributed to the following events:
A 90 % increase in prices furnace oil over February 96 to February 97;
85 % increase in electricity charges over July 94 to July 97,
79 % increase in prices of paper bags during November, 1994 to December 1997
A 128 % increase in excise duties over July 1992 to June 1997.
FURNACE OIL PRICES IN THE RECENT YEARS:
Furnace oil prices rose by 112% in 1997 as the government decided to annex furnace oil prices to
international oil prices such that they came to about Rs.6297 in 1997 from Rs.3900 in 1995. But when
the price of furnace oil in the international markets fell to $12 from $20 the local prices were not adjusted
to accommodate this change. At present furnace oil prices should fall in the range of Rs.3000 per ton in
Pakistan. Thus, furnace oil is available locally at double the prices in the foreign markets. In turn, theaverage impact of the rise in furnace oil prices works out to be around Rs.17 per bag.
Input 1998(In
Rupees)
1999(In
Rupees)
2000(In
Rupees)
%age change
1999 2000
Furnace oil (MT.) 6070.5 7285.00 8800.00 * 20.06 20.79
*This is the current price as per figures of March 21, 2000. The prices before this 11 % increase were Rs. 8,377.
ELECTRICITY PRICES IN THE RECENT YEARS:
Electricity charges were escalating due to the additional surcharges levied on them. These were about Rs.
1.82 per kWh in 1992-93 and rose by 107% to Rs. 3.76 in 1997-98. The prices have, however gone down
in the year 1998-99.
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 16/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 16/41
Input 1998 (In Rupees) 1999(In Rupees) %age change
Electricity (kWh)
Tariff B-1 4.66 4.60 -1.29
Tarrif B-2 5.01 4.70 -6.19
Tarrif B-3 4.18 3.98 -4.78
Tarrif B-4 3.83 3.41 -10.97
RELATIONSHIP OF INPUT COSTS WITH THE OVERALL COST
Sensitivity analysis shows that a five- percent increase in furnace oil prices results in one percent decline
in gross margins. The fuel and power claim the major part of the total cost of cement manufacturing. The
major standpoint of APCMA for their price increase is an increase in the prices of furnace oil.
The following is and evaluation showing how the price changes of these inputs impact the total cost and
price of cement.
Input
Total cost 50
kg of
Cement(In
Rupees)
%age of Total Cost10 % Increase in PriceAdds to Cost(In
Rupees)
Total Cost afterPrice
Change(Rs.)
Furnace Oil 138.72 20.6 2.859 141.579
Electricity 16.46 2.284 141.004
One proposition as a cost cutting measure given by APCMA is that if the government allows direct
imports of furnace oil by the manufacturer and index government’s supply of furnace oil with
international prices. The excise duty on ex-factory rate instead of retail, the prices of cement could be cut
back. If this proposition is considered the prices of furnace oil could be reduced from Rs. 45 per liter to
almost half the price.
PRIVATIZATION
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 17/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 17/41
When the hasty privatization in the 1991-92 was initiated, it was stated that the privatization would
benefit the common man as it was thought to be the panacea for all economic ills in the public sector.
The cliché-ridden privatization policy was based on the principle of competition, deregulation and
liberalization. Consumers were amazed when the results started surfacing. Prices of all commodities
went up, the massive layoff of employees in the name of “Golden Handshake” and bad business practices
emerged as the governing principle of the newly privatized units.
The cement industry is also a victim of the newly enacted privatization strategy. The prices of the cement
went up from Rs. 85 per bag to Rs. 235 per bag, without an plausible justification of cost and benefit. The
social cost was far more than the economic cost. The rhetoric of the broad based ownership has proved
abortive as the ex-production minister Mr. Islam Nabi, at some point disclosed that the government had
handed over six to a particular group. The Association of Builders and Developers (ABAD) and MonopolyControl Authority (MCA) has also joined the popular criticism about concentration of ownership and
misuse of cartel power.
There are in all 28 cement units in the country with an installed capacity of approximately 17.3 million
tonnes production. Out of these units only four units with merely 1.8 million tonnes are now in the public
sector while a majority of the installed capacity is concentrated in the 20 privately owned cement plants.
The installed capacity is far more than the current national demand. The oligopolistic behavior of thecartel has contributed a lot in falling national demand along with some other factors like decline in public
works program activities in the country.
The depressed trend in the construction sector is evident from its falling sectorial share in the national
output (GDP) which has decreased from 4.2 percent in 1992-93 to 3.6 percent in 1998-99. The growth in
the construction sector has also declined from in the vicinity of 6 percent during 1990-91 to one and two
percent during the period of 1993-94 to 1998-99 with an exception of 1995-96 when it recorded 3.25
percent growth. The poor growth of the construction sector is attributed mainly to two important factors,
first the upward adjustment of cement prices and curtailment in the public sector development
expenditure in recent times. The development expenditure of the federal government has fallen from 7.5
percent of the GDP in 1991-92 to 3.6 percent of the GDP in 1998-99. The public sector was a major
consumer of cement.
The cement industry attributes the high prices of cement to the government’s imprudent policy regarding
taxation and upward adjustment of furnace oil prices and electricity tariffs. The combined impact ofelectricity and furnace oil on cost of production is 47 percent. However, the MCA and ABAD have different
views on the issue. According to the government the MCA has reduced the total tax incidence from 47.5
percent (35 percent CED + 12.5 percent ST) to 40 percent excise duty in the Federal Budget 1997-98.
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 18/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 18/41
There was a marginal increase in electrical charges in late 1997, which was far below than lowering of tax
incidence. The furnace oil prices were also depressed in the market.
The cement was being sold in the market at around Rs. 165 per bag until February 1998 but prices
escalated to Rs. 240 – Rs. 245 per bag in July 1988. The cartel, APCMA, in a report submitted to the
Ministry of Commerce in May 1998, mentioned the total cost of production was Rs. 184.32, when
adjusted with profit and transportation the prices rose to Rs. 228.50 per bag. On the other hand in an
earlier report in June 1997, the APCMA had estimated the cost of production at Rs. 136 per bag and
adjusted it with profit and transportation at Rs. 170 per bag. The MCA and ABAD have also worked out
different cost structures. A comparison of cost of production from different sources are given in the table:
APCMA Consultant MCA
Jun-97 Apr-98 Oct-98 Oct-98
Raw Material 5.54 4.46 4.46 4.46
Packing Material 12.95 12.95 12.95 12.95
Furnace Oil 16.41 32.71 16.41 16.41
Power 17.05 22.84 19.00 19.00
Maintenance & Store 4.44 4.15 2.92 2.92
Overhead & Labor 7.65 15.81 7.75 7.75
Cost of Production 68.00 92.92 63.49 63.49
Government Levy 68.00 91.40 68.00 59.00
Total Cost of Production 136.00 184.32 131.49 122.49
Transportation 7.50 7.50 7.50 7.50
Gross Profit 26.50 36.68 31.01 17.51
Retail Price 170.00 228.50 170.00 147.50
The fluctuation of the cost in visible inputs hardly supported the logic for price hike. The furnace oil prices
fell sharply during 1998, which moved up to attain prices of 1996 and 1997. If we include recent rise (of
December 10, 1999) in the furnace oil prices, the total rise hardly exceeds 10 percent over peak prices
prevalent during 1996 and 1997. The same is the case with electricity, whose prices remained stagnant
during the period February 1997 and March 1998. A ten percent rise in March 1998 could hardly justify
the case for 35 percent upward adjustment in cement prices. The arbitrary increase Rs. 40 to Rs. 50 per
bag by cement manufacturers in February 1998 had laid the foundation for the slowdown of the
construction activity in Pakistan. A close look at the table would reveal that the cost structure data is
manipulated by the APCMA, otherwise, the on ground realities depict a different picture of upwardadjustment of input cost. The cost data provided by the ABAD and MCA may be termed as biased by the
cement cartel, even then, the prices of cement could not be justified beyond Rs. 200 per bag.
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 19/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 19/41
Another very disappointing aspect of exorbitant profiteering in the industry is that the cement industry is
unevenly distributed in various regions of the country. Different units use different technologies and
different units have different plants of different ages with different efficiencies. But irony is that all units
charge almost similar prices across the country, which implies misuse of cartel power. Another valid
principle of the market economy based on competition is when market is depressed, prices movedownwards, but in the case of cement the reverse has happened. The cement industry is working under
capacity and there is scope for full capacity utilization at affordable prices. But the thrust for extraction of
exorbitant profits dominates the principle of fair play.
The forces of exploitation and greed determine prices in Pakistani markets rather than market forces. The
government must check the in-ordinate price hike. The shelter is a basic need of the common man and to
ease the provision of shelter cement prices have to be brought down.
CHARACTERISTICS OF THE INDUSTRY
MARKET STRUCTURE
The cement produced in Pakistan by different manufacturers is virtually of the same quality and standard,
that is why consumers do not perceive any quality difference in the cement produced by different
manufacturers; therefore, the market for cement is oligopolistic. In oligopolistic competition the market
consists of few sellers who are highly sensitive to each other’s pricing and marketing strategies. Each
seller is alert to the competitors’ strategies and moves. If one company slashes its price by say 10%
buyers will quickly switch to this manufacturer and the other manufacturers will respond by lowering
their prices. In contrast if one oligopolist raises its price, the competitors might not follow this lead and
the oligopolist then would have to retract its price increase or risk losing customers to the competitors.But the cement manufacturers have formed a cartel APCMA and have set monopolistic prices. This is
evident from the fact that all manufacturers sell at almost the same price even though they use different
processes, have different technologies and different transportation cost.
ROLE OF ADVERTISING & PROMOTION
In Pakistan all cement manufacturing companies adhere to the British Specification # 12. The product of
each company is virtually same in terms of quality and price. The only role that advertising play in thissituation is that, it reminds the customers of the presence of the company in the market.
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 20/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 20/41
DISTRIBUTION FUNCTION
The cement industry is characterized by the need of an elaborate distribution system. The role of
distribution becomes more important when one area of a country is deficient in the production of a
product while the other is producing the same product in excess of the demand. The presence of the
product in the market is what makes or breaks a company. This is true for both export market and the
local market
NATURE OF THE INDUSTRY:
Before privatization the cement industry was highly regulated. Under the control of SCCP the prices were
kept to an artificially low level. However after privatization, the SCCP lost control over the prices of the
cement, however the industry is subject to the policies of the MCA and ECC.
SENSITIVITY OF THE INDUSTRY
Technological Change
The industry is capital intensive and is defined as one that makes use of the latest technology to deliver
quality product to the customer. Consideration needs to be given to this factor when making capital
budgeting decisions to arrive at the appropriate amount of capital that needs to be invested in acquiring
plant and equipment. This has a direct correlation with the type of the technology that the firm wishes to
use.
To remain competitive in the market, the players need to follow the highest standards of the technology,
but acquiring new technology and replacing the older one with the newer is very expensive and most of
the time unfeasible. Any major technological change can cause the entire plant to become obsolete. As
such there is no major technological changes affecting the cement industry in the near future.
Change in Energy Prices
The industry is highly exposed to the change in energy prices because energy (fuel & power) comprises
around 40-45% of the total cost of production. Sensitivity analysis shows that a 5% increase in furnace oil
prices results in a 1% decrease in the gross profit margin. Some companies that use wet process are
highly exposed to change in the energy prices as the wet process consumes 50% more energy than the
dry process.
Dumping Effect
In the international market Pakistani cement industry is exposed to the dumping by the Chinese
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 21/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 21/41
manufacturers.
Effects of Exchange Rates
The effect of exchange rate on the cement industry is quite complex. On one hand, weakening of
Pakistani Rupee makes the Pakistani exporters more competitive in the international market and on the
other hand the cost of manufacturing increases because the cement has a high forex component in the
form of energy, capital and transportation.
DEMOGRAPHIC EFFECTS
Size & Growth Rate of Population
The size of population and the population growth rate besides the consumption habits of the customershave a great impact on any industry. The per capita consumption of cement in Pakistan is around 71 kg
against the international standard of 100 kg. It means that there is a potential of increase in the
consumption of cement in future. Pakistan has one of the highest population growth rates in the world,
which is around 3%. It means that in future the increase in the housing needs will increase the demand for
cement.
PROBLEMS AND ISSUES
TAXES
The cement sector contributes Rs. 15-20 billion per annum to the National Exchequer. The taxation policy
should have ensured lower prices since cement is an essential commodity for the development of an
economy. The industry in Pakistan is paying Rs. 90 per bag as excise duty as compared to Indian
producers who pay only Rs. 17.50 per bag. If the excise duty rates are revised to Rs. 300 per tonne then
the price owf domestic cement can be reduced to as low as Rs. 160 per bag. Inordinate and frequent
increases in taxes create a dilemma for local cement manufacturers since they have to appreciate their
prices every now and then, adding to the lack of stability in the form of fluctuating prices. This has led to a
reduction in the demand for cement. The rates of excise duty have been escalating at the tremendous
rate of 350% in the last 10 years and 200% in the previous 5 years. This is the reason per capita
consumption of cement in Pakistan is as low as 71 kg. Import of machinery for expansion was exemptfrom duties until 1995 after which 10% regulatory duty was imposed on all imported goods. This led to
arise in the capital cost of new plants and on-going projects. Apart from excise duty the sector adds to
the state revenue in the form of:
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 22/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 22/41
Provincial royalties on limestone, gypsum etc.
Import duties on spares and parts
Octroi on all items purchased
Excise duty on all raw materials
The rapid escalation in excise duties has transformed the sector to a loss making industry from one that
was earning around 35% profit margin previously. The proposal now is to charge the levy as a combination
of excise, sales tax with adjustment margins for the same taxes paid on oil, power and materials. In lieu of
this recommendation the government has reduced the excise duty to Rs. 1400 per tonne as compared to
the past trend of a fixed 40% of retail price.
Exports too are being affected by fickle state policies. Low duty drawback of only Rs. 600 per tonne
reduces the level of exports. The reduction in excise duties should help local producers lower andmaintain their prices at around Rs. 200 per bag.
Under the principles of taxation only those commodities should be subjected to high rates, the
consumption of which is intended to be restricted and discouraged such as cigarettes and alcoholic
drinks. On the contrary cement is a basic commodity which has the potential to promote development
efforts and therefore its availability in the market at a reasonable price should be ensured.
DECLINING PROFITABILITY AND MARKET CAPITALIZATION
Since 1995 the cement sector has been in trouble. In 1993-94 the sector’s profits were well above Rs. 2
billion but they reduced to half the amount in the following year. Companies in this industry, from 1995-
96, were incurring losses onwards. On top of this the overall market capitalization witnessed a severe
decline from Rs. 62 billion in 1994 to Rs. 3.486 billion in 1998. The following table shows the actual and
forecasted profits in the 2 regional divisions of the cement sector
North
Zone(Rs.000) 1999(A) 2000 2001 2002 2003 2004 2005
Profit/(Loss) (1748950) 496295 1433159 2384390 3350130 4341778 5368633
Mkt.Cap. 4706643 6158841 21110427 35122058 49347412 63954388 79079965
South
Zone(Rs.000) 1999(A) 2000 2001 2002 2003 2004 2005
Profit/(Loss) (151884) 669181 850720 1034403 1221006 1411380 1606466
Mkt.Cap. 692243 1030523 12531104 15236756 17985417 20789622 23663250
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 23/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 23/41
Most cement companies are incurring heavy losses due to the fact that the retail price after excise and
other taxes leaves an amount not even able to cover their production costs much less give them space for
profit margins. 4 public limited companies were forced to close down since their losses had reached a
level they were unable to account for. The losses suffered by some of the companies in the 6 months
ended December 1998 are as follows:
CompanyOperating Losses(in millions) for 6 months
December 1998
D.G. Khan Cement 371
Maple Leaf 366
Pioneer Cement 132
Zeal Pak 104
Mustahkam 79
Javedan 74
Fecto 69
Lucky 59
Non-Listed 1,445
DEBT SERVICING
The financial crisis in the industry has led to a severe liquidity crunch in this sector. The debt burden
comprises of $300 million owed to international agencies and around Rs. 20 billion debt is outstanding in
relation to the local banks and DFI’s. Financial charges have been on the rise ever since 1992 when they
amounted to only Rs. 428 million, while in 1998 the same amount had risen to Rs. 1595 million. Cement
manufacturers are in a fix as to what to do to remedy the situation. One option available to them is
liquidation and 4 of the companies had to eventually resort to this. Fauji Cement, D.G.Khan Cement,
Pioneer and AC Wah are nearing a default situation on their debt servicing on loans obtained from foreigninstitutions such as International Finance Corp. and Commonwealth Development Corp. total credit
liabilities of the sector towards local banks is to the tune of Rs. 23.881 billion. Details are as follows:
COMPANY LOANS(Rs.million)
Pioneer 1450.35
D.G.Khan 312.36
Cherat 284.95
Fecto 215.86
Maple Leaf 2919.45
Javedan 388
Dadabhoy 296.5
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 24/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 24/41
Essa 225.32
Kohat 444.26
Slag 20.77
Zeal Pak 33.81
Dandot 83.74
Lucky 136.34
Pakland 603
Fauji 617.29
Companies have been unable to pay interest due on loans, owe payment to utility companies like WAPDA
and KESC. Depletion of stocks of furnace oil and paper bags for packaging and defaults in payments to
suppliers adds to their burden bringing them nearer to the edge. Late payment of bills will lead to an
additional loss in the form of 10% surcharge. Suppliers on the other hand will demand immediatepayment with the due penalties to avoid a complete default by the manufacturers. Low stocks of paper
bags will delay dispatches of orders and tarnish the goodwill developed with the consumers.
INCREASING CAPITAL COST OF PLANTS
The cement industry is a capital-intensive industry with heavy reliance on the engineering sector of the
economy. In addition to this, the manufacturers depend on technology, which is usually imported when
setting up a new plant or considering expansion. So far European and American plants are being set up in
the country. The cost of a 2000-tonnes per day plant lies within the range of Rs. 3.5-4 billion and for a
3000-tonnes per day plant the capital cost is approximately Rs. 5.5-6 billion. This large capital outlay is
increasing financial charges.
70% of the plants in Pakistan have been supplied by a Danish firm named FL Smidth. Japan and Germany
have sold only 2 plants here. The situation now is such that FLS is now a price- making monopolist who is
causing a steady upward trend in the price of its plants. All the new 15 plants being set up have been soldto us by FLS except those of Saadi Cement and Kaiser Cement. Due to persistent devaluation plants
which cost Rs.35-80 million in 1993 are now in the range of Rs. 3-6 billion. This hinders expansion plans
and adoption of latest technology by the new and existing plants.
CAPITAL COST COMPARISON OF NEW PROJECTS
Particulars Pakland 2 Saadi D.G Maple Fauji Galadari
Capacity(TPA) 750000 1200000 1000000 1000000 945000 630000
Nature of Project ExpansionGreen
FieldExpansion Expansion
Green
FieldGreen Field
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 25/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 25/41
Capital Cost(Rs.mn) 2800 4800 6643 6275 5715 4130
Origin of Plant Europe Europe Europe Europe. Europe. Europe
Rs./ton of
ann.capacity3733 4000 6643 6275 6048 6556
With the costs of FLS plants on the rise, a few plants have been bought from the Chinese who have
adopted this technology via franchise but are offering lower prices as compared to their Western
competitors. The drawback is that they are offering only very small capacity plants such as those
producing 300-2000 tonnes per day.
GOVERNMENT POLICIES
The cement industry continues to operate under pressure of inconsistent Government policies announced
from time to time.
These briefly are:
Capacity taxation was abolished from August 1993 which took away special incentives for
increased production which, in turn could have revived the industry in the larger national interest.
The taxes and duties on inputs have consistently been increased. The system of charging excise
duty is extremely unfair as cement being voluminous product, freight and allied charges vary widely
from place to place.
The price of furnace oil, a major cost component of cement manufacture, has increased sharply.
Just now it has increased to Rs. 8800 per tonne.
Import of machinery for expansion project was a exempt from import duties and sales tax which expiredon June 30, 1995 and additional duties have been imposed on imported goods. This has increased the
capital cost of the on-going projects in addition to the effect of devaluation of the Pak Rupee.
EXPORTS
Since consumption of cement in southern region has gone down and northern region has attained self-
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 26/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 26/41
sufficiency, units located in southern region are forced to cut down their capacity utilization. The
possibility of cement export is the proverbial silver lining for the recession-torn industry. While there are
cement deficient countries like Sri Lanka and Bangladesh importing approximately 2 million tonnes per
annum each, there is tough competition from India and Chinese suppliers.
In fact, apart from the prices offered by Pakistani manufacturers, lack of facilities for handling bulk export
of cement has become a major impediment. Where bulk handling is cheaper than handling bagged
cement. Export of cement is necessary for the existence and survival of the industry rather than a source
of profit.
PROBLEMS
Dumping by Chinese manufacturers, lack of incentives, high costs of production and freight charges havemade the cement export unviable. In the recent development, there has been a radical change in the
political scenario of Afghanistan. The war-ravaged country is a prime target for the northern producers to
sell their cement. This possibility is still remote until the situation settles. According to an IRS all countries
except Bangladesh and Philippines are in a position to export cement and hence pose competition for
Pakistan. Yemen is another potential destination but there too government subsidized cement from Gulf
countries will pose serious competitive threat.
The export potential available to the Pakistani cement sector can be summarized in the following table:
Countries
Current
Demand
1998
Demand
Growth %
Local
Production
(metric
tonnes)
Current
Gap
Est. Gap
in 2003 Remarks
Bangladesh 3100 8 200 2900 4400 No limestone
Sri Lanka 2000 1 500 1500 1600
Fast depletion of
limestone
reserves
Myanmar 2400 8 500 1900 3000 No major capital
Yemen 2800 10 1200 1600 1000 High growth rate
TOTAL 10300 2400 7900 10000
Demand though in the above countries is on the rise, potential is highly jeopardized by the high prices at
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 27/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 27/41
which local clinker/cement is available to these importers. Further more clinker/cement is available in
these countries at extremely low prices due to the South Asian crisis and the crash of currencies. On
average the C&F prices in these countries have fallen by US $15 per tonne. Pakistan on the other hand is
unable to export these products even at variable cost. The price offered by local producers is $80 per
tonne, which is much higher than those quoted by other players in the international market.
Pakistan though has an excellent opportunity to capture these markets since they offer benefits in the
form of geographic proximity, and perceived high quality of Pakistani cement. Presently India and China
are reaping the benefits since they are able to offer competitive prices as their costs of production is
lower and state subsidies for exports are given to cement producers of these countries.
Import requirements of the countries mentioned in the above table are approximated at 17.7 million
metric tonnes. Pakistani producers were of the view that they could capture around 30% of this market in
1998-99 and increase their share to 50% in the following year, that is, 1999-2000. By the year 2000 the
forex earnings were estimated at US$ 697 million.
DEMAND FOR IMPORT OF CEMENT (000 metric tonnes)
Countries 1997-98 1998-99 1999-2000
Bangladesh 2365 2485 2612
Sri Lanka 1526 1648 1719
Syria 706 792 889
Myanmar 1728 2073 2488
Lebanon 1671 1721 1722
Singapore 3926 4005 4085
Hong Kong 2405 2463 2522
Vietnam 3373 3727 4118
TOTAL 17700 18914 20205
In relation to the above scenario the targets set by our local producers are as follows:
EXPORT TARGETS OF CEMENT PRODUCERS
1997-98 1998-99 1999-2000
Import Demand(000
tonnes)17700 18914 20205
Target % mkt.share 30 40 50
Qty.(000 tonnes) 5310 7566 10102
C&F Prices(US$) 65 67 69
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 28/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 28/41
Total Export
(millionUS$)345 507 697
Apart from non-competitive prices domestic cement manufacturers face problems in the form:
Inadequate port facilities
Present export rebate of 12.5% of FOB i.e., Rs. 300 and Rs. 270 per tonne for cement and clinker
respectively is very high
Clinker/cement are not Non-Traditional Exports and therefore denied extra 50% rebate
Export of cement allowed only via sea which eliminates cheaper road transport through
Afghanistan and into Central Asia
Lack of sufficient duty and surcharge drawbacks. Reimbursement of these duties to the exporter
should be made.
Chinese dumping and high freight charges also act as a disincentive for local exporters. For instance
freight charges from Pakistan to Dhaka are around $17 per tonne, whereas it costs the Chinese only $12
per tonne to the same destination. Rupee devaluation poses another problem for exporters in the form of
changing fuel and furnace oil prices and thus increasing costs. A 5% increase in furnace oil prices leads to
a 1-% fall in gross margins for exporting companies.
The country’s cement manufacturers can gain a strong foothold in the foreign market by competing on
prices because brand image and value are not of prime consideration for cement in the international
arena. Proposals offered to remedy this situation are duty drawbacks, refunding of development
surcharge and freight subsidies to the tune of $180 million. Pakistani cement can attract buyers only if it
offers a combination of superior quality with competitive prices. Also fast action is needed to tap the vast
potential available for foreign market development for the cement sector to regain its balance and revert
to its former status as a well performing industry.
FUTURE OUTLOOK
At the current point cement manufacturers and the government have to take concrete steps even to keep
units in production. On the input side, necessary steps are required to contain the energy cost. The
following are the general recommendations that would help to improve the situation of the cement
industry
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 29/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 29/41
The liberalization policy Pakistan is so eager to adopt will work both for and against the local
industries. Unrestricted trade will allow free entry of low priced cement into the country and reduce
existing market shares of all domestic players.
Growing emphasis on low prices may reduce the qualitative aspect of production and give way to
inferior products. Companies have to maintain quality standards and at the same time try and
reduce costs via economies of scale.
Too much expansion by a few players will lead to the development of a monopolistic environment in
the sector. At present the industry is oligopolistic in market structure with a few sellers in the
market who compete on the basis of price and technology and resort to means to increase their
relative shares in the market.
The wet process technology is outdated and all manufacturers using this method will stay far
behind if they do not take measures to improve and update their production facilities.
Focus in the future will be on cost competitiveness and product differentiation so that producers of
cement can enhance margins and increase earnings by capturing a wider market base. Players
specializing in different varieties can develop to various market segments and increase customer
base.
Comments
5 comments
14Like Share
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 30/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 30/41
Tags: IndustriesReports & Studies
You may also like...
0
Jaffarsons Pakistan – Company Profile and Information Systems Study
31 May, 2015
5 Comments Sort by
Kashaf Shahbaz · Works at Student
good
Like · Reply · Nov 19, 2015 7:33am
Kaleem Ullah · Internship at Center for Intelligent Systems and Network Research (CISNR)
Ahh, thankyou , you have solved a huge problem
Like · Reply · 1 · Dec 27, 2015 9:37am
Habib Ullah Khan Marwat · Civil Engineering Dept at COMSATS University
thank you for give us such a good information with brief detail,,,,,,,
Like · Reply · 1 · Feb 26, 2016 10:50pm
Muhammad Umair · Audit Associate at Fazal Mahmood & Company Chartered Accountants-
(Students- Group)
a good research report indeed !
Like · Reply · Apr 8, 2016 11:59pm
Sajid Hussain · Virtual University of Pakistan
informative, appriciated.
Like · Reply · Apr 16, 2 016 1:04am
Oldest
Add a comment...
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 31/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 31/41
0
Sugar Industry of Pakistan – An Academic Report
5 May, 2015
0
Philips Pakistan Consumer Electronics Company – Cost Accounting Report
26 Jul, 2015
Leave a Reply
Your email address will not be published.
Name
Website
Comment
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 32/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 32/41
Post Comment
Follow:
Next story Analysis of Pakistani Fertilizer Industry – A Report
Previous story Analysis of Pakistani Automobile Industry – A Report
Most Popular
Battery Industry in Pakistan – A Comparative Study
Coca Cola Beverages Pakistan limited – Management Study
Independent Power Projects [IPP] – An Academic Report
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 33/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 33/41
Zindagi o Amal – Poem from Javed Nama [Allama Iqbal]
Faiz Ahmed Faiz & Rasul Gamzatov: Two Romantic Socialists
Pakistan Steel – An Academic Analysis (MBA Report)
A Little After 3am: Short Story [Afsana]
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 34/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 34/41
Ya Ke Yeh Muhabbat Hai – Salahudin Ayubi
Aisa Bhi Ho – Urdu Poem by Salman Ali
Ussay Kehna – Urdu Poem by Solat Rehman
Like us on Facebook
Careers @ Ravi Magazine!
Do you have an interest in India & Pakistani Culture, Arts, Literature, Poetry, Events, Politics, News, Food
& more? Then RAVIMAGAZINE.COM, can’t wait to hear from you!
Click here for Open Positions at Ravi Magazine
Freelance writers can drop us an email at
[email protected] with specimen of writing or any area of interest.
We the Peopleلو
ہم
Be the first of your friends to like this
Ravi Magazine663 likes
Like Page Share
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 35/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 35/41
The Patras 1975-76, Special Issue of Ravi راوی ا خاص طرس نمبر
Faiz Ahmed Faiz Last Poem – Naat Rasool e Maqbool S.A.W.
Popular Poetry شعرو شاعر
Faiz Ahmed Faiz’s – Poem for Palestine
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 36/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 36/41
Poems from prison by Faiz Ahmed Faiz, Mahmoud Dervish & Nazim Hikmet
Political Theatre سياسی تماشہ
Muttahida Qaumi Movement: The Lost Promise – By R. Habib
Love On The Line Of Control – A Story by Col. D.Pal [Narration: R. Ghosh]
More
Search keywords
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 37/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 37/41
To search type and hit enter
Topics موضوعات
● Reports & Studies (112)
● GC University Lahore (71)
● Ravians (61) ● Urdu Poetry 51) (شاعری
● Allama Iqbal 30) (عالمہ اقبال
● Punjabi Poetry (22)
● Industries (21)
● Faiz Ahmed Faiz 20) (فيض
● Ghazal (20)
● Politics 14) (سياست
● United States (14)
● Islam (14)
● English Poetry (13)
● Javidnama (11)
● Economics (10)
● India (8)
● Feminism (8)
● Urooj Nisar (8)
● Lahore 7)الہور
)
● Education Policy (7)
● Urdu (7)
● Karachi (6)
● Bhutto Family (6)
● Jinnah (Quaid-e-Azam) (6)
● 9/11 (5)
● Anwar Masood 4)مسعود
انور
)
● Punjab 4)نجاب
)
● Mughals (4)
● Bollywood (4) ● 1947 Partition (4)
● Gandhi गाधंी (4)
● Cricket (4)
● Ramzan (4)
● Manto (Saadat Hasan) (4)
● Afsanay (4)
● Telecoms (3)
● Nawaz Sharif 3) (نواز شريف
● Rumi (3) ● Investment in Pakistan (3)
● Interviews (3)
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 38/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 38/41
● Ahmad Faraz 3) (احمد فراز
● Nusrat Fateh Ali Khan (3)
● Punjabi Stories (Fiction) (3)
● Dr. Abdus Salam (3)
● Eid (3)
● Information Technology (2)
● Nayer Samdani (2)
● Human Rights (2)
● Noon Meem Rashid 2) (ن.م. راشد
● Amrita Pritam (2)
● Waris Shah 2) (وارث شاه
● Noor Jehan (2)
● Foreign Aid (2)
● Poverty (2)
● Imran Khan (2)
● Lahore Androon Shehr (2)
● Lollywood (2)
● Nazim Hikmat (2)
● Mahmoud Dervish (Poet) (2)
● Quran (2)
● Mirza Athar Baig (2)
● Persian Poetry (2)
● Short Stories (2)
● Society (2) ● Sufism (2)
● PML-N (2)
● Book Reviews (2)
● Textiles (2)
● Basant (2)
● Festivals 1) (تہوار
● Patras Bokhari 1) طرس بخاری )
● Sufi Ghulam Mustafa Tabassum (1)
● Bapsi Sidhwa (1) ● Attaullah Khan Esakhelvi (1)
● Bandit Queen (1)
● Sarmad Sehbai (1)
● Asad Amanat Ali Khan (1)
● Ahmadiyas (1)
● Dilip Kumar (1)
● Sher Mandal Library (1)
● V&A Museum London (1)
● Naseeruddin Shah (1)
● General Zia (1)
● Amartya Sen (1)
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 39/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 39/41
● United Kingdom (1)
● Humayun (Mughal Emperor) (1)
● Samuel Bourne (1)
● Khaled Ahmed (Journalist) (1)
● Mehdi Hasan (1)
● Mirza Ghalib 1) (مرزا غالب
● Ayub Khan 1) (ايوب خان
● Pervez Hoodbhoy (1)
● Adil Najam (1)
● Afghanistan (1)
● Rabbi Shergill (1)
● Deepa Mehta (1)
● Philosophy (1)
● Shoaib Mansoor (1)
● NATO (1)
● Kamal Uddun Azfar (1)
● Shareef Kunjahi (1)
● Saeed Anwar (1)
● Mohenjo-daro (1)
● Jassa Singh (1)
● Kasur (1)
● Pablo Neruda (1)
● Sania Mirza (1)
● Shahnaz Begum (1) ● Kashmir (1)
● IT Sector (1)
● Blasphemy (1)
● Crime & Law (1)
● Aruna Shanbaug (1)
● K2 Mountain (1)
● English Fiction (1)
● Khushal Khan Khattak (1)
● Wazir Agha (1) ● Ajoka Theatre (1)
● Iran (1)
● Abida Parveen (1)
● Socialism (1)
● NADRA (1)
● Healthcare (1)
● Gurr (1)
● Amjad Islam Amjad (1)
● Munir Niazi (1)
● Habib Jalib (1)
● Parveen Shakir (1)
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 40/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
https://www.ravimagazine.com/analysis-of-pakistani-cement-industry-a-report/ 40/41
● Arundhati Roy (1)
● Munshi Premchand (1)
● Vikram Seth (1)
● Qurratulain Hyder (1)
● Asghar Nadeem Syed (1)
● Dr. Iffat Shahab (1)
● China (1)
● Migration (1)
● Javed Miandad (1)
● Capitalism (1)
● Hinduism (1)
● Social Issues (1)
● MQM (1)
● Sikhism (1)
● Arab Spring (1)
● Junoon (1)
● Medicine (1)
● Imperialism (1)
● Ali Hajveri (1)
● GC (1)
● PTV (1)
● Canada (1)
● Mushtaq Ahmad Yusufi (1)
● Mansha Yaad (1) ● Hanif Ramay (1)
● Yousaf Sallahuddin (1)
● Environment (1)
● Market (1)
● Cowasjee (1)
● Dr. Waseem Anwar (1)
● Tanya Wells (1)
● Mobilink (1)
● David Beckham (1) ● Gurinder Chadha (1)
● Evolution (1)
Home
Sufi Music
Contact
Write for Ravi
Privacy
8/17/2019 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine Nationalization Privatiaton
http://slidepdf.com/reader/full/analysis-of-pakistani-cement-industry-a-report-ravi-magazine-nationalization 41/41
5/14/2016 Analysis of Pakistani Cement Industry - A Report - Ravi Magazine
Ravi Magazine © 2014 - 2016. All Rights Reserved.