Cement Manufacturing & its

Correlation of Banking Finance.

A CASE STUDY OF PAKISTAN

By

Hamid Ahmed Khan

NI-W8-MBA-0360

A Thesis

Submitted to

MR. ASIM MASHKOOR

In partial fulfillment of the requirement for the degree of

Masters in Business Administration (Finance)

April 2010)
 Letter of Acknowledgment

In the name of almighty ALLAH who is most gracious and merciful.

First of all, I thank Almighty Allah who gave me ability, courage,

resources & enable me to complete this research. Then I would like to
express my gratitude to all those who helped me and made it possible
for to complete my thesis. I am deeply indebted to my Instructor Mr.
ASIM MASHKOOR whose worthy time, help, stimulating suggestions
and encouragement helped me a lot during writing this research. I also
thank my colleagues, friends and all those people for their help,
support, interest and valuable hints.

Hamid Ahmed Khan

MBA ®

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 Letter of Acceptance

The research study entitled CEMENT MANUFACTURING & ITS CORRELATION OF

BANKING FINANCE is prepared by Hamid Ahmed Khan. It is affirmative as a
partial accomplishment of the pre-requisite for the degree of Master in Business
Administration major in Finance.

Asim Mashkoor

Instructor

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 TABLE OF CONTENTS

S/No. PARTICULARS P/No.

Chapter 01 INTRODUCTION TO CEMENT

MANUFACTURING

1.1 Introduction

1.2 Scope & objective of Cement Industry

1.3 Problems & Opportunities of Cement

Industry

1.4 Research Methodologies

CHAPTER THEORATICAL LITRATURE REVIEW

02 REGARDING

CEMENT MANUFACTURING

2.1 Cement Information

2.2 Types of cement

2.2.1 Rapid Hardening cement

2.3 Decorative cement Oil Well & other Special

purpose

2.4 Different types of cement

2.5 Cement Manufacturing Process

2.6 Resources Condition of that sector

2.7 People (labor)

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 CHAPTER THEORATICAL LITRATURE REVIEW
02 REGARDING

CEMENT MANUFACTURING

2.8 Pakistan Cement Industry

2.9 Industry Future

2.10 Major Decision in budget 2008-2009

2.11 Global Cement Production

2.12 World Cement producers & Global cement

Trade & shipping

2.13 Demand of Cement Industry

2.14 Pakistan Cement Industry Overview

2.15 Cement Sector to Face Rising Costs,

slowdown in Demand in FY09

2.16 Pakistan ,s Foreign Investment Policy

Chapter 3 FRAMEWORK OF ANALYSIS

3.1 Hypothesis Analysis

3.2 Terminologies of Industry

3.2.1 Data Collection

3.2.2 Data Processing

3.2.3 Hypothesis Testing

3.2.4 Analysis of Data

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 3.3 Expected Problem of Analysis

Chapter 4 IMPLICATION AND CONCEPTUAL

FRAMEWORK OF CEMENT INDUSTRY

4.1 Comparison of Cement industry & its

Measurement

4.2 Future Scope of Cement

Chapter 5 CONCLUSION

5.1 Conclusion

5.2 Bibliography/References

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1.1 INTRODUCTION
The cement industry has grown rapidly since the reform and opening-up.
Now it has become one of the pillar industries for national economy
development in Pakistan. The cement industry in Pakistan has come a
long way since independence when the country had less than half a
million tonnes per annum production capacity. By now it has exceeded 10
million tonnes per annum as a result of establishment of new
manufacturing facilities and expansion by the existing units. Privatization
and effective price decontrol in 1991-92 heralded a new era in which the
industry has reached a level where surplus production after meeting local
demand is expected in 1997.

Pakistan has remained a net importer of cement but due to the

privatization of units operating under state control and subsequent
expansion program by the new owners supported by financial has pushed
the industry to a point where the country is bound to reach an oversupply
situation. However, the recent increase in energy cost provides
opportunity for the efficient units based on dry process to sustain the
situation for a relatively longer period. It would also be possible because
the expansion by the existing units and establishment of new units are
being delayed.

Pakistan's cement market is divided into two distinct regions, North and
South. The northern region comprises the Punjab, NWFP, Azad Kashmir
and upper parts of Baluchistan, whereas the southern region comprises
the entire province of Sindh and lower parts of Baluchistan. Traditionally,
the southern region has always been surplus in cement production but
with the establishment of more plants in the northern parts of the country
the region has become almost self-sufficient in supply of cement.

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1.2 Scope & objective of Cement Industry
SCOPE:
It may be recalled that in 1947, Pakistan had inherited 4 cement plants
having total installed capacity of 0.5 million tons. These four units at that
time were controlled by India. These inherited cement plants however
were closed when they come to their age after 50 years of their
operations. During early 30 years of independence, five cement units
were established with aggregate capacity of 3.2 million tons of production.
Among these units one was established in Hyderabad Sindh in the public
sector. It was called Zeal Pak and was set up in 1956. Another unit in the
public sector was known as Maple Leaf which was established in the
province of Punjab in the same year. Three units were set up during 1965-
66 in the private sector. These were Javedan in Sindh, Gharibwal and
Mustehkam in the province of Punjab. After nationalization of industries in
early seventies, cement industry remained under the control of
government till late seventies. During this period, growth in demand of
cement was around 7 per cent per annum, whereas new capacities were
not coming up to match with the demand. Consequently, Pakistan had to
start importing cement in 1976-77 and continued to import cement till
1994-95.

After the change in the government in 1977, private sector was allowed to
establish cement plants. As a result of change in policy, seven projects
having capacity of 2.54 million tons were installed in private sector and
simultaneously, State Cement Corporation of Pakistan (SCCP) also brought
in 4 more units with a total capacity of 1.6 million tons. Resultantly, the
total capacity of the cement industry enhanced to the level of 8.5 million
tons by the end of 1990.

Those units came in the public sector were Thatta Cement in Sindh,
(1983), Dandot(Punjab) 1983, Kohat (NWFP) 1983 and D.G.Khan (Punjab)
1985.

The units allowed in the private sector were Cherat (NWFP) 1985, Pakland
(Sindh) 1985, Attock (Balochistan) 1986, Dadabhoy (Sindh) 1988, Essa
(Sindh) 1988, Fecto (Punjab) 1989 and Anwarzeb White Cement (Sindh)
1988.

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According to a report of ICMAP, in the early nineties, the SCCP was the
market leader hence the private sector had to pursue the policies of the
public sector in fixing the prices of cement. With more depreciated plants
in its fold, combined cost of production of plants of SCCP was on lower
side. They had a price mechanism whereby surplus profits of depreciated
plants were allocated to the new plants having higher depreciation cost
and financial changes. The level of cement prices fixed by SCCP therefore
remained on the lower side. With the privatization of cement units after
1990, SCCP lost its control over the supply of cement. At that time there
was an acute shortage of cement in the Northern areas of the country. In
the first half of nineties, Pakistan had to import cement which led to the
increase in cement prices exorbitantly making cement companies to earn
very high profits. This tempted some of the existing units like Cherat,
Pakland, Dadabhoy, Ac Wah, D.G. Khan, Maple Leaf and Kohat to go for
expansion in their plants. Simultaneously, 5 more new projects with
aggregated capacity of 5 million tons came on the stream. As such,
production capacity went up to 16 million tons by the end of 2000. The
five new units in the private sector were Pioneer (Punjab) 1994, Lucky
(NWFP) 1996, Askari (NWFP) 1997, Fauji (Punjab) 1997 and Best Way
(NWFP) 1998.

OBJECTIVE:
Pakistan has been ranked fifth in the list of world’s top cement exporters.
According to the Global Cement Report, China ranks first with 26mn
tonnes in exports, followed by Japan (12mn tones), Thailand and Turkey.
Pakistan overtook Germany by exporting 11mn tonnes of cement during
last fiscal year.

1. To find out the reason behind high rates tax corporative with
neighboring country.

2. To find out the idea about future expression.

3. To determine the reason that why Investor loose their confidence.

4. To find out that the lower capacity will reduce & fulfill benefit of
Investor.

5. To determine the Fact of increase International coal Price.

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1.3 Problems & Opportunities of Cement
Industry

Problems:
With regards to the competition in export markets, we have observed
following behaviors of cement industry in Pakistan:

1. Cement exports started in FY02 to Afghanistan that is still a major

market.
2. Iraqi market can become a potential target after peace is restored.
3. India and Iran are the major competitors for Pakistan in the Middle
Eastern region.
4. Upcoming capacity expansions in Iran and other GCC countries will
create tough competition for Pakistan.
5. Export prices are presently touching USD 75/ton in the exports
market, however they are likely to come down as new capacities
comes online.

OPPURTUNITIES:

The cement sector in Pakistan had a notable performance in fiscal year

2007-08 as prices surged from Rs270 per 50kg bag to a record Rs400.

A shortage of cement in India and the Middle East meant exports in

particular were remarkably healthy throughout the year. The country’s
cement companies have excess capacities, which were exported to the
Middle East, Africa, Afghanistan and India at a premium price.

The biggest exporter in the industry is Lucky Cement, which exports 47

per cent of its produce. Lucky has fared better than other cement

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companies. The cement sector’s profitability declined by 69 per cent
during the first nine months of FY 2007-08, but Lucky’s profitability
increased by 50 per cent

1. The local cement industry faces high upfront fuel costs. In order to
facilitate their conversion to coal, which is widely available in the
country, the government has given incentives for imported plant
and equipment for coal firing units.

2. The demand of Pakistani cement is expected to continue to grow at

the rate of 20 per cent for about four years to come. It may then
follow traditional growth rate of seven per cent per year.
Announcement of major dams will dramatically increase this
demand.

3. Deregulation after accession of Pakistan to WTO is expected to open

the window of competition from cheaper markets. There may be no
tariff after this deregulation on import of cement allowing its entry
into Pakistan from cheaper market at lower rate. Cement from
cheaper markets may also block Pakistan’s export of cement to its
neighboring countries. Global market has vigorously taken up the
advantage of economy of scales and multinational giants now
control more than 40 per cent of world production (China not
included). The recent acquisition of Chakwal Cement by an Egyptian
giant, Orascom may be a beginning of such an entry in Pakistan by
multinationals. New avenues for export of cement are opening up
for the indigenous industry as Sri Lanka has recently shown interest
to import 30,000 tons cement from Pakistan every month. If the
industry is able for avail the opportunity offered, it may secure a
significant share of Sri Lanka market by supplying 360,000 tons of
cement annually.

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1.4 RESEARCH METHODOLOGY
Nature of Study

“An exploratory and descriptive study”

The research is exploratory & descriptive by there nature because the

subject will be analyze on the data gather through primary and secondary
sources. To gather these sources basically will be undertaken.

Study Setting

“Field study in a non-contrive setting”

Research will be a correlation study and will be conducted in a non-

contrive setting. As I can’t temper and manipulate the variables, so I will
have relied field study.

Time Horizon

“One shot or cross-sectional study”

This study is cross-sectional study and that is gathered just once, our
limited period of time in order to research question.

Once all the data is gathered it will be carefully analyzed and results will
be g=based on the collected data.

Research Method

This research is descriptive study, conducted in natural non-contrive

setting aimed at gathering maximum information. All the techniques are
usd together accurate and up-to-date information regarding the issue.
This research study is mainly based on the secondary data to fulfill the
requirement of this project.

The secondary data is also available about this study, which is very helpful
for me in preparing this research study.

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 CHAPTER #2

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2.1 Cement Information

“Cement” is a material with adhesive and cohesive properties that makes

it capable of bonding mineral fragment into a compact and rigid mass.
The word cement seems to have been derived from the middle age
English “cyment”, and Latin “caementum”. The latter word “caementum
“meant rough quarried stone or chips of marble from which a kind of
mortar was made more than 2000 years ago in Italy. During the middle
Ages term “cement” or “segment” generally was made for a mortar.
Common lime, hydraulic lime, gypsum plaster, “pozzolana”, natural and
Portland cement are few of the material, which are used for cementing
purposes. These cementing materials may be classified into two groups:

Non-Hydraulic:
Non-hydraulic cement do not have the ability to set and harden
under water but requires carbon dioxide from air to harden e.g. non-
hydraulic lime and plaster of Paris. Their cementing prosperity
arises from the re absorption of gases that were expelled during
their processing. Their products of hydration are not resistant to
water.

Hydraulic:
Hydraulic cement is defined as cement having the ability to set and
develop strength in air or under water and which are insoluble in
water after they have set. Such cement harden even in the absence
of air and form a solid product which is stable in water and can be
safely used in all structures in contact with water. Hydraulic cement
includes hydraulic limes, Portland cement (both basic and blended),
oil-well cement, white cement, colored cement, high alumna
cement, expensive cement regulated and hydrophobic cement etc.

Quarrying and crushing

The primary raw material for cement manufacture is calcium carbonate or
limestone. This is obtained from the quarry where, after the removal of
overburden, the rock is blasted, loaded into trucks and transported to the
crusher. A multistage crushing process reduces the rock to stone less than
25 mm in diameter. Most modern cement factories are located close to a

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source of limestone as about 1.5 tons of limestone is needed to produce
one ton of cement.

Blending and storage

The crushed rock is stored in stockpiles where, by a carefully controlled
process of stacking and reclaiming across the stockpile, blending takes
place and a uniform quality of raw material is achieved. Systematic
sampling and laboratory testing monitor this process. The other raw
materials, normally shale, iron ore and sand, are also stored in stockpiles.

Raw milling and homogenization

Carefully measured quantities of the various raw materials are fed, via
raw mill feed silos, to mills where steel balls grind the material to a fine
powder called raw meal. Homogenizing silos are used to store the meal
where it is mixed thoroughly to ensure that the kiln feed is uniform, a
prerequisite for the efficient functioning of the kiln and for good quality
clinker.

Burning
The most critical step in the manufacturing process takes place in the
huge rotary kilns. Raw meal is fed into one end of the kiln, either directly
or via a preheated system, and pulverized coal is burnt at the other end.
The raw meal slowly cascades down the inclined kiln towards the heat and
reaches a temperature of about 1 450 °C in the burning zone where a
process called clinkering occurs. The nodules of clinker drop into coolers
and are taken away by conveyors to the clinker storage silos. The gas
leaving the kiln is cleaned by electrostatic precipitators prior to discharge
into the atmosphere.

Cement milling
The cement mills use steel balls of various sizes to grind the clinker, along
with a small quantity of gypsum to a fine powder, which is then called
cement. Without gypsum, cement would flash set when water is added
and gypsum is therefore required to control setting times. The finished
cement is stored in silos where further blending ensures consistency.

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Quality assurance
Extensive sampling and testing during the manufacturing process ensures
the consistency and quality of the end product. Testing takes place at the
stages of the manufacturing process indicated by the symbol.

Cement dispatch
Cement is dispatched either in bulk or packed in 50 kg bags and
distributed from the factory in rail trucks or road vehicles. The 50kg bags
are either packed directly onto trucks or can be palletized. The pallets can
be covered by a layer of plastic to offer further protection from the
elements.

2.2 Types of Cement:

The types of special cement now being produced can be roughly classified
in the following six categories according to the special purpose for which
these have been designed. These are:

1. Rapid hardening cement.

2. Cement resistant to chemical attack of certain soil and aggregates.

3. Low heat of hydration cement.

4. Better protecting cement for steel reinforcement.

5. Better workability and whether resisting cement.

6. Decorative cement and other special cement.

2.2.1Rapid Hardening Cement:

Under this category following two cement have the desired
properties of fast development of strength viz. the Portland Rapid
Hardening Cement and High Aluminum Cement. “Their specific
characteristics are as follows:

• Rapid Hardening Cement (Type III of A.S.T.M):

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 This cement has high early strength, its equal to or better
than 3 Days’ strength of OPC. This is achieved by having high
contents of tricalcium silicates in its composition. It is mostly
used in intended to release the framework within 24 hours or
so for subsequent use in the mass production of RCC
elements.

The respective 1,2,3,7 and 28 days’ strengths (in equivalent

P.S.I figures) of this cement under British specifications,
German standard, and A.S.T.M. Japanese and Pakistan
standards for mortar cubes are as follows:

German
B.S. Astm Japanese Pakistan
Standard

1 day strength - - 1800 923 -

2 days strength - 4350 - - -

3 days strength 4200 - 3500 1846 4205

7 days strength - - - 3266 5220

28 days 6670 7975 - 4686 6670

strength

The difference in strengths given above is basically due to

difference in all standards the 3 days strength is nearly 1-1/2
to 2 times of O.P.C. The disadvantages of this cement beside
its higher cost are its high heat of hydration, which renders it
unsuitable for mass concreting projects.

• High Aluminum Structural Cement:

This cement is used where very rapid setting and very high
early strength are required. This cement has strength at one
day nearly equal to 28 days strength of O.P.C. Its setting is so
fast that it must be put in place within a few minutes of its
mixing. It is generally used in plugging leakage in dams etc. or
putting in pile foundations where limited time is available for
setting of cement before the seepage water build up occurs.
In Pakistan it has been used in some specific locations in
terbela dam. Abroad it has been used in buildings where it
was found essential to remove the framework after one or two
days.

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 This cement besides its high cost has the disadvantages of the high
heat of hydration and retrogression in strength in time. There have
been some structural failures due to miscalculation of its final
strength after some years of use especially in humid and hot
atmosphere. This cement has however excellent heat registering
qualities and is therefore extensively used in Kilns, boilers and
Furnace linengings. Cement resistant to chemical attack especially
of Sulphate and Organic acids or Soil and active Silica of aggregate.
In this category the following cement can be included:

2-A Highly Sulphate Resistant Cement

2-B Moderately Sulphate Resisting Cement

2-C Portland Blast France Slag Cement.

2-D pozzolana Cement

2-E Low Alkali Cement

2-A Highly Sulphate Resisting Cement H.F.R.C

The most important and the most widely used chemical
resistant cement is H.S.R.C cement High concentration of
sulphate salts is present in seawater and in the soil near
seashores. These salts are sometimes present in soil and in
the submit water even thousands of miles away from the sea.
Even Terbela Dam site was found not free from sulphate and
H.S.R.C had to be used in foundations at the site. The sulphate
salt severally attack concrete can start within months. This
cement has lower 3 days strength than OPC and also its
capacity to protect reinforcement steel in structures exposed
to atmosphere action is lower than OPC and hence not
recommended for usual R.C.C. work in super structures.

2-B Moderately Sulphate Resisting Cement

(M.S.R.C.)
This cement has been developed as a compromise Cement
having the good properties of sulphate resistance to some
extent and of good alkalinity like that of OPC which useful for
reinforcement protection and also of early strength
development better than Highly Sulphate Resisting Cement.

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 No standard exists for this cement in the B.S and P.S.
specifications but under ASTM it is designed as Type II. The
three days minimum strength of OPC, H.S.R.C & H.S.R.C is
1800, 1200 and 1500 PSI respectively under ASTM.

This cement though better than H.S.R.C in many respects is

not as resistant to sulphate as H.S.R.C and should not be used
in foundations near the seashore. Incidentally the O. P.
cement produced in most of the Cement Factories around
Karachi are confirming to the ASTM specifications for this type
II and hence more resistant to mild sulphate attack than the
cement produced in the factories in other parts of country.

2-C Portland Blast Furnace Slag Cement:

This cement has well to moderate resistance to sulphate
attack from soil. This cement has some other very desirable
qualities of stability details of which follow below under item
3C.

2-D Pozzolana Cement:

This cement has well to moderate resistance to sulphate
attack from seawater or soil containing sulphate.

2-E Low Alkali Cement:

This is a variety of ordinary Portland cement in which the total alkali
contents of cement has been controlled to remain below 0.6%. With
this reduced percentage of alkali contents the danger of alakie of
cement attacking the active silica contents of aggregate is eliminated.
Generally we do not have active aggregate of this type in Pakistan but
on each large scale-concreting project, test of alkali aggregate
reaction must be performed to enshore safety of the project. Certain
varieties of Chert-stone found in Pakistan contain active Silica and
would require low alkali for making concrete.

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 3. Low Heat of Hydration Cement:
Normal and Rapid Hardening Cement generate lot of heat during the
setting and hardening process so much so that the structure under
concreting can crack. This can occur especially while poring large
messes of concrete in confine spaces like those of Dam and Bridge
pier foundations. In order to avoid this problem cement of low Heat
of hydration have been developed some of which are as listed below:

3-A Low Hear of Hydration Cement (type IV of A.S.T.M.)

3-B Portland blast Furnace Slag Cement

3-C Pozzolana Cement

3-D Super Sulphate Cement

3-A Low Hear of Hydration Cement (type IV of

A.S.T.M.):
This is cement specially meant for the concreting of structures
where large masses of concrete have to be poured at one
time. Generally it is specified that heat of hydration on 7 days
will not exceed 250Kg. This is achieved by making this cement
with larger percentage of di-calcium silicates in its contents
than normally presents in OPC. In A.S.T.M this cement is
designated as type IV and under BS as LHP. Under German
standards its type is LAHORE with symbol as N.W. while the
Japanese equivalent is type L.H.P with symbol as M.H.C. The
disadvantage of this cement is its slow development of
strength and is therefore not used at sited where rapid
hardening or other specific qualities are required.

3-B Slag Cement:

This is another variety of low heat cement. Grinding 35% to 65
% of granulated blast furnace slag with ordinary Portland
cement clinker produces it. The higher the slag content, the
lower are the 3 and 7 days strengths but better is the
resistance to chemical attack. Under German standards as
much as 90% slag can be used with type HOZ cement and
under Japanese standard up to 70% in the type BSCC. This

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 cement is slower hardening compared to OPC- its strength
compared to OPC in ASTM being as follows:

OPC B.F SLAG CEMENT

3 days strength 1,800 760

7 days strength 2,800 1,400

28 days strength 4,000 3,000

This cement besides being a low heat cement has also the
advantage of being medley sulphate resistant although it
cannot replace the highly sulphate resistance cement for
marine piles and foundations. This cement has excellent
resistance to weak organic acids present in the soil and has
also the very desirable quality of protecting reinforcement
steel better than any other cement.

3-C Pozzolana:
Grinding various proportions of natural pozzolana, tars or
volcanic ash with ordinary Portland clinker makes this cement.
It is very good cement in the sense that it has good
workability properties in addition to having low heat and
moderate sulphate resisting properties. It has been used
extensively in the 37KM long causeway connecting Dhahran
with Bahrain in the gulf. So far in Pakistan we have not been
able to locate useful pozzolana deposits, but there is
indication that there may be good deposits of this material in
the overburden of coal deposits of Sindh.

3-D Super Sulphate Cement:

This is another variety of low heat cement. Its standards exist
under B.S but not under A.S.T.M. it is made by grinding about
70-80% B. F. Slag with about 10% gypsum and 1-2 % Portland
clinker or lime. This cement is also middy resistant to sulphate
attack. It is very finely ground cement and its early strength at
3 day is comparable to OPC although under the BS its 7 days
strength is required to be comparable to at least the 3 days
strength of OPC. This cement is also good masonry cement
due to its good workability but it can be used in RCC and other

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 construction work in the same manner as OPC is used with
excellent results.

Cement For Better Protection of Reinforcement against Corrosion:

The basic steps for the prevention of resulting of steel in concrete is

to use such cement aggregate and mixing water as are basically
free from chlorides, maximum contents of chlorides in concrete
being limited to 0.02 % by weight. The following properties in
cement are essential for greater protection of steel:

1. Cement to be with minimum percentage of Chlorides says not

exceeding 0.01 per cent.

2. Portland Cement preferably having about 6 to 8 per cent

Tricalcium Aluminates.

3. Cement made with slag as additive.

If the Tricalcium Aluminates is less than 5 per cent as per ASTM the
cement will not have the capacity to neutralize the stray Chloride
entering into concrete and thus fail toward off the effects of
Chlorides. The properties of slag cement with about 35 percent slag
and 60 per cent Portland Clinker are superior to other cement in this
respect.

4. Cement for Better Workability and Wealth

E.W. Resistance:
These are cement, which are render the corresponding concrete
more workable than other normal cement. This quality is necessary
where high compatibility and better weather resistance is
demanded. Because of greater workability the concrete made from
this cement can achieve much higher strength due to lower water
cement ratios achievable compared with other cement.

This property is given to the cement by addition of the entraining

agents like lime or other plasticizers so that the remix and to place
in position. Some of the cement belongs to this category are:

Air Entraining Cement:

Under ASTM four different types of cement have been classified as
air-entraining version for normal Rapid-hardening and Sulphate

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 Resisting Cement and each concrete thus made is more workable
and attains higher weather resisting property compared to their
non-air entrained versions.

Blended Hydraulic and Masonry Cement and

Grouts:
This cement is basically made for plastering and grouting. Standards
have been laid down for this cement both in the British and ASTM
specifications. In fact under ASTM there are at least 10 versions of
Masonry cement. Some of the standards are for OPC based cement
with or without air entraining agents while others are for sulphate
resistance and low heat versions. This masonry cement is made by
addition of plasticizing materials like lime, ground silica, slag or
Pozzolana and air- entraining agents’ etc. Portland Cement clinkers
during grinding.

2.3 Decorative Cement Oil Well and other

Special Purpose Cement:

This cement is basically of properties similar to O.P.C except that it

is made from such raw materials, which contain the least amounts
of coloring pigments like traces of iron, manganese and chrome.
Basically this cement has higher Tricalcium Aluminates in its
contents than OPC and therefore subjects to sharp attack by
sulphate from any source.

2.4 Different Types of Cement –

From British Cement Association;

Sustainability and Factory-Made Cements:

Integration of sustainability into all its operations now sets the UK cement
industry's agenda. For cements to remain viable, their embodied energy

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and carbon footprint must be reduced over time without jeopardizing
product performance. The increasing availability of cements such as CEM
II types for use in concrete, mortar and grout plus the continued
production of niche Masonry cements for use only in mortar will help the
industry to meet its social and environmental obligations and achieve
necessary economic objectives.

Until now, Portland cement CEM I, of strength classes 42,5 or 52,5, has
been the 'traditional' cement in the UK, although it is the least sustainable
type given its high proportion of cement clinker. Greener, more
sustainable 'non-CEM I' cement solutions incorporating lower proportions
of clinker are now generally available in both bulk supply and packed in
bags. Use of these non-CEM I factory-made cements should become more
and more widespread as prudent specifies include a cement's
sustainability credentials within their specification criteria.

Factory-Made Composite Cements:

Used here, the expression, 'factory-made composite cements' means any

cement that comprises Portland cement clinker combined (underground
or blended) with one or more additional inorganic constituents plus an
optimized amount of set-regulator (gypsum). The additional constituents
are selected from materials such as power station fly ash, blast furnace
slag and limestone, all already familiar to UK concrete, mortar and
grouting practice. Therefore, in terms of the British/European standard for
common cements, BS EN 197-1, factory-made composite cements, are
collectively, types: CEM II, CEM III, CEM IV and CEM V i.e. any 'non-CEM I'
cement specified in the standard. Such a use of the term aligns with the
UK concrete sector's traditional understanding but is wider than is implied
by the standard itself wherein two particular cements, CEM II/M and CEM
V, include the word 'composite' in their names. In general, the appropriate
use of factory-made composite cements delivers performance equal to
that of concrete containing CEM I cement and under certain conditions,
can improve on the durability performance achieved.

Furthermore, in the case of use in masonry mortars within the generality

of exposure conditions, factory-made composite cements can achieve the
same level of performance on a one-to-one basis as a CEM I cement within
the same traditional volume mix proportions.

MBA ® Page 24
Portland cement (CEM I):
Formerly known as ordinary Portland cement (OPC), CEM I is
manufactured to conform to British Standard BS EN 197-1. CEM I is the
cement that has been most commonly used throughout the world in civil
engineering and building works. Concretes and mortars made using CEM I
are versatile, durable and forgiving of poor construction practice. In
addition, specific properties can be enhanced by altering either the
cement-making recipe or the size of the particles and so producing
different cements. However, CEM I is the least sustainable type and use of
alternatives is in the ascendancy.

Sulfate-Resisting Cements:
The traditional sulfate-resisting cement used in the UK has been sulfate-
resisting Portland cement (SRPC), conforming to BS 4027. SRPC is a
special type of CEM I cement manufactured to contain a high content of
iron oxide in order to limit the amount of the mineral phase tricalcium
aluminates (C3A) and thereby increase its sulfate resistance. Additionally,
SRPC is normally low alkali cement which benefits concrete in resisting
the alkali silica reaction (ASR). However, it is not the only sulfate-resisting
cement available. Various factory-made composite cements are also
sulfate-resisting including the generally available CEM II/B-V type of
Portland-fly ash cement containing at least 25% of fly ash. Such CEM II/B-
V cements are permitted for use in the same wide-range of sulfate
exposure conditions as is SRPC and are also low in reactive alkalis.
Moreover, SRPC is a type of CEM I cement with a high clinker content, it is
no longer manufactured in the UK and is becoming more difficult to
source. Consequently, greener sulfate-resisting composite cements will
continue to grow in importance.

Rapid Hardening Portland Cements:

Rapid hardening versions of CEM I cements are available. The average

particle size is smaller in these cements and they gain strength more
quickly than do ordinary CEM I types. They generate more heat in the
early stages and can be useful in cold weather concreting. However, their
principal use is in manufacturing precast concrete units where the high
early strength of the concrete permits quick re-uses of moulds and
formwork.

Cements described as either rapid-setting or extra rapid hardening may

be mixtures of CEM I and a non-Portland cement such as calcium

MBA ® Page 25
aluminates or calcium sulfoaluminate and will tend to both set and harden
(gain strength) very quickly.

White Cement:

White cement is a Portland cement CEM I made from specially selected

raw materials, usually pure chalk and white clay (kaolin) containing very
small quantities of iron oxides and manganese oxides. White cement is
frequently chosen by architects for use in white, off-white or colored
concretes that will be exposed, inside or outside buildings, to the public's
gaze.

Masonry Cement:
Masonry cements, as their name suggests, are designed for use in
masonry mortars for bricklaying, block laying, rendering and plastering
work. They are generally mixtures of Portland cement CEM I plus selected
mineral additions (e.g. limestone or hydrated lime) and chemical
admixtures such as air-entraining plasticizers that form tiny bubbles of air
in the mortar. Masonry cements are used with sands and water to produce
workable, cohesive mortars that are freeze/thaw resistant in the fresh wet
and hardened states.

Expansive Cements:
Concretes, based on most cement types, tend to shrink in volume as they
dry out. Expansive cements are designed to either compensate for this
shrinkage or to lead to an overall increase in volume compared to the
concrete when first placed. They tend to be mixtures of Portland and
calcium sulfoaluminate clinkers, optimized for gypsum content.

Environmental Cements:

In principle, environmental cements are of two types, neither of which

conforms to any strict definition: those that are formulated to treat and
encapsulate environmental residues and those designed to limit the
environmental impact of manufacture in comparison with traditional
cements by reducing energy usage, virgin raw materials and/or
atmospheric emissions.

The first type covers a range of compositions and properties, although

many are Portland cement-based, they are specifically formulated to treat
and remediate contaminated soils, sludges and wastes. The use of these

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cements in situ, produces a new construction product, for example a
cement-bound soil, a practice/product that in time is set to replace the
time-expired dig and dump philosophy.

The second type of environmental cements tend to be described by their

manufacturers as eco-cements or low energy/low carbon cements and are
differentiated by process, raw materials, properties and uses. There is a
wide range of these non-Portland 'alternative cements' and their potential
is being monitored closely.

Non-Portland Cements:

These products tend to embody less energy and have an inherently

smaller 'carbon footprint' than most cements based on Portland cement
clinker; this means that during manufacture comparatively less energy is
used and less carbon dioxide is emitted. In principle, this makes such
cements more sustainable and therefore potential candidates to
eventually replace Portland cements in whole or in part. However,
whether such non-Portland cements will simply satisfy niche markets or
occupy a more major role in construction depends crucially on the
geographical/geological availability of the raw materials used in their
manufacture. Limestone, the principal raw material in Portland cement
clinker production is geologically abundant and hence it forms the basis
for the 'global binder' Portland cement CEM I. By and large, the raw
materials used to make non-Portland cements are less abundant and less
widely dispersed.

Examples of these disparate cements publicized as possible

candidates to be general construction materials, are: calcium
sulfoaluminate-based cements (e.g. CSA-bC2S variants)
geopolymeric cements (alkali aluminosilicates), magnesium-oxide
based cements and C-Fix (hydrocarbon-based). Irrespective of the
cement type, extensive research on long term performance will be
required before widespread acceptance in general construction, or
indeed structural applications, could be achieved. In addition, there
are a number of non-Portland cements that have established niche
markets, some examples of these are: calcium aluminate cement
(high alumina) used for refractory purposes or its rapid hardening
properties, magnesium ox chloride cement (Sorel cement) for
flooring, magnesium phosphate cement for rapid repair of roads and
airport runways, alkali activated slag’s and natural/prompt cement.

MBA ® Page 27
Mortar, in its most general and basic form, is referred to as Portland
cement, or Type one cement, and is created by burning limestone with
other materials at 1450 degrees Celsius. The result is then ground to
produce a fine powder, which becomes one of the components of
concrete. However, altering the amounts of the other materials in the
burnt mixture yields several different types of Portland cement, each type
having unique properties and strengths. The type of mortar used in
building a structure should be chosen based on the structure’s purpose
and environment.

Because structures have various chemical and physical requirements,

eight different types of Portland cement are manufactured. These eight
types are simply referred to as Type one, Type two, Type three, Type four,
Type five, and Type one-A, Type two-A, and Type three-A. Types one
through five are distinctly different, while Types one-A, two-A, and three-A
are modified versions of their counterparts.

The first five distinct types of mortar will first be discussed, as well as their
suggested uses. Type one cement is suitable for most basic construction
uses. Type two is best for structures built in hot environments, or in soil or
water high in sulfate. For projects requiring strength at an early stage,
Type two is ideal because it provides more strength within one week than
the other types. Type four is useful in limiting heat caused by hydration
and is therefore used in massive concrete undertakings, such as dams.
When soil or water is high in chemicals, Type five should be used because
it is manufactured to resist chemical erosion.

The final three types of mortar are known as the air-entrained cements,
because they have microscopic air bubbles added to their mixtures to
increase the durability of the concrete. Air-entrained cements are
especially useful in environments that have repetitive freezes. Types one-
A, two-A, and three-A are similar in properties to types one, two, and
three; the air-entrained cements simply contain air bubbles.

2.5 Cement Manufacturing Process:

1. The cement manufacturing process begins when limestone, the basic

raw material used to make cement, is transported by rail to the Edmonton
plant from the Cadomin limestone quarry 220 kilometers west of
Edmonton.

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2. The limestone is combined with clay, ground in a crusher and fed into
the additive silos. Sand, iron and bottom ash are then combined with the
limestone and clay in a carefully controlled mixture which is ground into a
fine powder in a 2000 hp roller mill.

3. Next, the fine powder is heated as it passes through the Pre-Heater

Tower into a large kiln, which is over half the length of a football field and
4.2 meters in diameter. In the kiln, the powder is heated to 1500 degrees
Celsius. This creates a new product, called clinker, which resembles
pellets about the size of marbles.

4. The clinker is combined with small amounts of gypsum and limestone

and finely ground in a finishing mill. The mill is a large revolving cylinder
containing 250 tonnes of steel balls that is driven by a 4000 hp motor.
The finished cement is ground so fine that it can pass through a sieve
that will hold water.

5. The cement manufacturing process consists of many simultaneous and

continuous operations using some of the largest moving machinery in
manufacturing. Over 5000 sensors and 50 computers allow the entire
operation to be controlled by a single operator from a central control
room.

2.6 Resources condition of that sector

MATERIALS AND ENERGY:

The following raw material is required in the production process which are
frequently available in Pakistan.

1. Lime stone:
This raw material is extracted from the near by mountains. Limestone
has the highest composition in the cement product. 75% to 80% of
the cement constitutes of limestone.

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 2. Clay:
Clay is another natural resource. This raw material is also companies
owned. 15% to 20% of cement composition comprises of clay .

3. Iron Ore:
Iron Ore is the only resource that is bought from contractors. Iron Ore
is added in small quantities and it helps to strengthen the cement.

4. Gypsum:
Gypsum acts as a retarding agent. It slows down the hardening
process, which in turn gives the constructor enough time to use it.
Again it is taken from nearest mountains.

5. Furnace oil:
It is used mainly for power generation. Initially the companies was
relying on WAPDA for power supply but now the companies have thier
own electricity generation plant that provides upto 50% of the total
requirements. With the increase of furnace oil prices the companies
are expected to move to adopt coal as a more cost efficient and
environmentally friendly fuel for kiln firing. Today the management is
exploring possibilities of alternative and cheaper fuel such as waste
firing etc.

2.7 People (Labor):

Pakistan is one of the countries having low labor cost as an advantage.

The direct labor that works in cement companies includes both Skilled and
unskilled labors:

Skilled Labour Unskilled Labours

• Electrical (DCS System Engineers) Helpers

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 • Mechanical( Killens Operators)
Trolley Men

• Cement Mill Packers, Crushers, Packers)

• Civil Engineers Loaders

The companies in cement sector take their people as one of its most
valuable assets they view their human resource as a competitive
advantage therefore they ensure that their employees only those people
that are self motivated and professionally qualified. They also take into
consideration that their business goals are realized through such diverse
work force providing equal opportunities without any discrimination on the
basis of cast, creed, gender and religion:

Land:

The land that has the factories and used for accommodation is owned by
most of companies. There is enough space to accommodate new plants if
the need arises.

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2.8 PAKISTAN CEMENT INDUSTRY
(Operational Units Data)

2.9 Industry Future:

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The cement demand would increase in future due to Government policies
as the Pakistan People’s Party’s (PPP’s) slogan has always been ‘roti,
kapra aur makan’ (bread, clothing and housing). In this regard a
statement of the new government confirmed that it would encourage
industries and construct small dams. Pakistan's economy, PACRA said
grew impressively during last five years with an average GDP growth rate
of around 7%. Cement industry has a positive correlation with the GDP
growth rate. The major domestic demand drivers are public sector
development programs (infrastructure), real estate and industrial
construction.

But on other hand there are many factors, which can create many
problems in Pakistan cement industry. According to the analysts of
Pakistan Credit Rating Agency (PACRA) the cement sector is currently
facing stern challenges emanating from a wide spectrum of socio-
economic risks including contracting economic activities, and high input
costs. These negative developments, along with the prevailing credit
crunch and rising interest rates, have further constrained the industry's
prospects.

The conducive economic environment not only fuelled the local demand
but also provided impetus for capacity expansion. Resultantly, the
industry added significant capacity recently, while several new production
lines are scheduled to commence operations shortly. During this period,
the cement manufacturers also established export operations by catering
to the growing demand of regional economies. This, while stabilizing the
local cement prices, had a positive impact on capacity utilization and
margins. Although the local demand dwindled significantly in the first
quarter of FY 09 (around 15% declines), strong growth in exports has
provided support to the industry in the form of largely sustained capacity
utilization and price stability. However, given the global recession, export
demand is expected to come down.

This would negatively impact the margins and put pressure on local prices
that could lead to a price war among producers. The looming supply
overhang scenario in the sector could potentially worsen the situation.
Profitability of the sector has come under pressure due to high energy
cost (comprising around 50% of total raw material costs) and increasing
financial expenses.

MBA ® Page 33
Keeping these developments in view, the outlook on the sector is negative
which implies that PACRA perceives downward pressure on the ratings
within the industry, especially for high leveraged entities. PACRA, as part
of its on going surveillance, is monitoring all developments very closely,
and may take a client specific rating action wherever it is deemed
appropriate. However, the cost and exports may be affected due to
weakness of the US dollar causing coal, electricity charges and freight
prices, comprising 65 to 70 percent of the cost. The PSDP allocation has
been cut by Rs 75 billion and feared further cuts would curtail cement
demand. 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.

Moreover, this rising trend is expected to be short-lived due to higher

interest rates and inflationary concerns are likely to make it
disadvantageous for investors to enter the construction industry. In
addition to this, to control real estate prices the government is
considering imposing a tax on it.

2.10 MAJOR DECISIONS IN Budget 2008-

2009:

1. Federal excise duty on cement has been raised to Rs 900 per Tonne
from the existing base of Rs 750 per tonne.

2. The Finance Bill seeks to extend exemption on ready mix concrete

blocks. Previously, building blocks of cement were only exempted
under this Schedule.

3. Despite the fact that cement constitutes as one of the basic

necessities for shelter, the policy makers have subjected the
cement sector to the highest taxation in the region. The levy of
General Sales Tax (GST) on cement is Rs660 per ton in Pakistan as
compared to Rs320 in India. it is said that Pakistan has one of the
highest tax rates on cement in the Asian region. The impact of such
tax and duty structure has resulted in almost 40 per cent increase in

MBA ® Page 34
 the cement price per 50 kg bag when compared to India
suppressing demand for Pakistan cement.

2009 global cement consumption stabilization

followed by 2010 recovery:

Source: Portland Cement Association, Skokie, Ill.

World cement consumption is expected to decline 1.7 percent in 2009, a

modest drop cushioned by a roughly 4.0 percent growth in utilization by
China and India. According to a recent PCA report, gains in those two
nations, which together account for 58 percent of the world’s cement
consumption, will mask the harsh downturns predicted for many of the
global cement markets. Among developing economies, consumption is
anticipated to decline nearly 16 percent during 2009.

Although world governments are engaged in massive stimulus programs,

early projects most likely will be low in cement intensities. Jobs such as
bridge work, which has higher cement intensities but longer design times,
will materialize full force in 2010,when worldwide cement consumption
will yield a 3.7 percent gain. “The magnitude of the global economic
stimulus programs currently under way is unprecedented,” says PCA Chief
Economist Ed Sullivan. “This is concentrated, however, in developed
countries. Emerging economies, with the exception of China and India, are
expected to lag one year behind.”

Sullivan expects global consumption figures to reach 2.65 billion metric

tons in 2009, down from 2.7 billion in 2008. To gauge how drastic and
rapid the world economic decline is, in Sullivan’s October 2007 global
forecast, he had anticipated cement consumption in the neighborhood of
2.82 billion metric tons by 2008. In his current report, Sullivan predicts
continued worldwide growth rates of 7.7 percent (to 2.96 billion metric
tons) and 6.9 percent (3.17 billion metric tons) in 2011 and 2012,
respectively.

MBA ® Page 35
2.11 GLOBAL CEMENT PRODUCTION:

Recent years have seen the cement industry grow dynamically with most
of the actions taking place in emerging economies. Despite the ongoing
financial crisis the global economy is facing, the need for housing and
continued government investments in infrastructure development by
emerging economies is offsetting downturn in mature markets. Though, at
present, demand is growing, but at a decelerated pace, the phase is
momentary. Long-term projections indicate healthy demand growths, as
world economy stabilizes and construction activity picks up across global
markets into the next decade.

China, followed by India, United States, Japan and Russia, represent the
largest producers and consumers of cement worldwide. Other countries
featuring prominently on the global cement space include Spain, South
Korea, Italy, Iran, Turkey, and Brazil. Significant capacity expansions in
China, India, Saudi Arabia, UAE, Turkey, Egypt, and Brazil are underway
and planned for the next few years.

Cement: A Global Strategic Business

Report:
Portland cement is the most widely consumed cement variety worldwide.
The largest geographic market is Asia-Pacific, and the fastest growth is
forecast to take pace in the Middle East & Africa and Asia-Pacific markets.
In fact, China alone consumes more than half the global Portland cement.

Blended cement, the less environment polluting varieties, would see

demand grow in the next few years, as their favorable environmental
profile and excellent performance wins end-user interest. Again Asia-
Pacific represents the largest geographic market, though share of Europe
also stands out. Fastest growth would take place in Asia-Pacific, as
demand is expected to increase over the forecast years.

In terms of market, China remains the largest regional market, where

Construction Contractors, followed by Concrete Products Producers

MBA ® Page 36
represent the largest markets for cement. The fastest growing market,
however, would be Ready-mix Concrete Producers, as they benefit from
ban imposed by the Chinese government on mortar and concrete mixing
at construction sites.

Meanwhile, the second largest regional market, India, would see cement
demand advance the fastest for the Ready-mix Concrete Producers
market. Though demand from Consumers, the largest cement market,
would continue to grow, it would lose share to Ready-mix Concrete
Producers and Concrete Products Producers markets.

The global marketplace is characterized by participants such as Lafarge

(France), Holmic (Switzerland), CEMEX (Mexico), Heidelberg Cement
(Germany) and Ital cementi (Italy), which represent the five leading
manufacturers of cement. Other international cement makers include
Buzzi Unicem (Italy), Cimpor (Portugal), CRH (Ireland), Votorantim
Cimentos (Brazil), Sumitomo Osaka Cement (Japan), Taiheiyo
Cement (Japan), and Anhui Conch (China). Other leading regional
market leaders include: Anhui Conch, China Shanshui, China National
Building Material, and Tangshan Jidong in China; and ACC, Ambuja
Cement, Grasim, UltraTech, and India Cements in India.

"Cement:
A Global Strategic Business Report" from Global Industry Analysts, Inc.
provides a comprehensive review of market trends, drivers, product
profile, players, competition, recent developments, mergers, acquisitions,
and other strategic industry activities. Analysis is presented for major
geographic markets such as the United States, Japan, Europe, Asia-Pacific,
Latin America, and Middle East & Africa. Global and regional analytics are
provided for product segments including Portland cement, Blended
Cement, and Special / Other Cement.

Demand is also analyzed in terms of end-use sectors including Residential

Building sector, Non-Residential Building sector, and Non-building sector
for select markets. Cement demand is also analyzed by markets including
Ready-mix Concrete Producers, Construction Contractors, Concrete
Products Producers, Consumer, and Other for major markets, including
China and India.

MBA ® Page 37
2.12 World Cement Producers
Country 2007 2008 2009
(By Principal Production of Cement
Countries)
Brazil 39500 39500 40000
China 626500 705000 750000
Egypt 24500 23000 26000
France 19839 20000 20000
Germany 28034 30000 28000
India 100000 100000 110000
Indonesia 31100 33000 34000
Iran 26650 30000 31000
Italy 39804 40000 40000
Japan 76550 71800 72000
Korea, Republic of 52012 55500 56000
Mexico 29966 31100 31500

Russia 35100 37700 40000

Saudi Arabia 20608 21000 23000

Spain 40512 42500 40000
Thailand 27913 31700 35000
Turkey 30120 32600 33000
USA 90450 91300 92600
Other Countries 361000 360000 360000
World Total 1700000 1800000 1860000

(Source : Mineral Commodity Summaries.)

MBA ® Page 38
2.12 Global Cement Trade & Shipping –
Future Outlook to 2015

The world cement trade and shipping sector is a complex

combination of a wide variety of regular movements and sporadic
short-term opportunistic shipments

FOR IMMEDIATE RELEASE

Jul 02, 2008 – Global Cement Trade & Shipping - Future Outlook
to 2015

the world cement trade and shipping sector is a complex combination of a

wide variety of regular movements and sporadic short-term opportunistic
shipments. A high volume of trade represents movements between
companies under the umbrella of the same multinational cement group,
whilst independent cement traders are still a major factor determining
price levels and patterns of trade.

Construction booms and downturns can alter the regional cement trade
profile dramatically – as witnessed in recent years in many of the world’s
leading markets. Similarly, the rush to build new production capacity to
meet future demand can make significant volumes of cement and/or
clinker available for export, with the location of the plant and inland
logistics determining the economic feasibility of overseas shipments.

A further layer of complexity is imposed by the variability of shipping

costs – bulk carrier freight rates are determined by factors outside the
cement sector, but they can radically alter the cost competitiveness of
supplies from one country in a variety of world markets. The volatility of
shipping costs – as witnessed over the past 4 years – therefore provides
an extra layer of uncertainty for the future prospects of trade patterns and
volumes.

Global Cement Trade & Shipping - Future Outlook to 2015 examines in

detail the recent development of cement trade patterns and volumes, and
provides an insight into the likely future outlook over the period to 2015.
This is based not only on the cement production/consumption outlook for
individual markets throughout the world, and therefore the implications

MBA ® Page 39
for import requirements and export availability, but also on the likely
future development of the specialist cement carrier fleet and the general
bulk carrier sector. With extensive development ahead for the sizes of
bulk carrier of most relevance to the cement sector, the outlook for
cement shipping via this mode is highly uncertain, especially given the
extent of market uncertainty over the future path for shipping freight
rates.

For the specialist cement carrier sector, Global Cement Trade & Shipping -
Future Outlook to 2015 includes a highly detailed set of analyses of the
current fleet, and an examination of the likely forward development,
based on the age profile and trends in new vessel ordering.

Global Cement Trade & Shipping - Future Outlook to 2015 provides

invaluable independent analysis on the development of cement shipping
and trade throughout the world in the period to 2015. It represents the
most up-todate and comprehensive examination of the trade and shipping
of cement ever published, and is essential reading for all parties with an
interest in this sector.

Table of Contents: -
SECTION 1 INTRODUCTION & EXECUTIVE SUMMARY

Includes an overview of the Report’s structure, as well as a summary of

the methodology underlying the analyses.
This Section also includes a summary of the most significant points and
conclusions drawn from the main body of the Report. They are presented
in the order of the corresponding Sections for ease of reference.

SECTION: 2 OVERVIEW:

WORLD CEMENT TRADE 1970-2005

This Section provides detailed analysis of the key developments in world

MBA ® Page 40
cement and clinker trade over the past 35 years, with most emphasis on
the recent years of extensive trade volume and structure development.
Attention is focussed on the main factors underlying trade developments,
and the importance of seaborne shipments within the trade aggregate.

SECTION: 3

EUROPE
Imports and exports by European countries dominate world trade,
although a large part of the European trade total comprises inland
movements between neighboring countries. This Section includes
full discussion and analysis of regional trade volumes and patterns,
as well as examination of the trade profile in recent years for key
import markets and export sources.

The Section is sub-divided into:

3.1 Overview
3.2 The European Union
3.3 Other Europe

SECTION 4 :
THE AMERICAS
The US cement market has been the world’s leading destination for
cement & clinker exports in recent years, as cement consumption
levels have far exceeded domestic capacity. Whilst there has been
an import level fall in recent years, there is now a resurgence in
import levels as demand continues to expand – this Section
examines the scale and structure of US import demand, and
examines the main sources of supply for the US market.

Latin America includes a number of traditional cement exporters to

world markets. Export availability has varied of late, according to
the scale of domestic cement consumption growth, but there
continue to be a number of significant trade flows from Central &
South American countries, mainly within the region but also to more
distant markets. Import penetration among the leading cement
markets is varied, but has changed in recent years. This Section
includes in-depth appraisal of recent/current developments for

MBA ® Page 41
 imports & exports for all the main markets and suppliers in the
region.

4.1 North America

4.2 Central & South America.

SECTION 5:
AFRICA & THE MIDDLE EAST

Africa includes a number of import-dependent markets, both in terms of

finished cement and clinker for grinding operations. Large-scale capacity
expansion has seen import requirements decline and export availability
emerge in recent years in key markets, with an associated radical
change in the pattern of trade flows.

Similarly in the Middle East, capacity expansion has funded export

growth for certain States, whilst ever-expanding domestic cement
consumption and the aftermath of conflict in the region has prompted
large-scale imports in others. The result is a complex evolving trade
structure.

For each of these regions, the overall regional profile at the current time
and over recent years is examined and discussed, before detailed
individual country analyses are presented for the key import markets
and exporting countries.

5.1 Africa
5.2 Middle East

SECTION 6:
EAST ASIA
The traditional major roles played by Japan and South Korea in Asia and
Pacific markets have been supplanted in recent years by the sheer scale
of expansion of exports from China. Whilst these have been largely

MBA ® Page 42
destined for trans-Pacific or intra-Asia movements, supplies from China
and the region have also been shipped to a wide variety of markets
world-wide.

At the same time, the region includes a number of significant cement and
clinker import markets, supported by the involvement of the region’s
large cement companies in import facilities overseas. Detailed
examinations of the regional and national import/export profiles are
presented and discussed all the major countries in the region.

Export

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MBA ® Page 44
MBA ® Page 45
2.13 Demand of cement industry :

Local cement demand fell by 13pc in FY09

Local cement demand witnessed a decline of 13 percent Y-o-Y in FY09 at

19.4 million tons versus 22.4 million tons in FY08.

According to the data released by the All Pakistan Cement Manufacturers

Association (APCMA), Pakistan cement sector concluded FY09 with dismal
sales performance by witnessing a meagre 2 percent Y-o-Y growth at
30.8m tons.

The growth in overall cement sales mainly came from the record high
cement exports during the year. After six years of consecutive YoY
growth, the domestic cement market depicted a declining pattern in the
wake of lukewarm construction activities amid economic slowdown, high
interest rates, liquidity crunch and cut in infrastructure spending both in
public and private sectors, during the year.

During FY09, domestic cement plants operated at 74 percent capacity

utilization level as compared to 81 percent in the last year. The decline in
utilization level was mainly the function of lower domestic demand and
addition of new capacities during the year. The utilization for the
domestic market stood at 46 percent as against the previous year’s level
of 60 percent.

On the other hand, the utilization level for export sales recorded at 27
percent versus 21 percent in FY08. The rising export demand helped the
local cement industry to operate at an optimum level during the year.

With the shrinkage in domestic cement demand, Pakistan’s per capita

cement consumption at the end of FY09 is recorded at 120kg versus
139kg a year earlier - representing a decline of 14 percent. The decline is

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solely due to the fall in domestic cement demand caused by the reason
mentioned above. However, it is not expected that the per capita levels
of cement would fall further.

2.14 Pakistan Cement Industry

Overview:
Our short research based paper summarizes the key points
about what has been happening in the Pakistan cement industry
and what future holds for it, if the growth continues the same way.

Cement exports of the country continues to depict healthy growth

and were recorded at the level of 913,000 tonnes during the month
of November that triggered massive growth of 61 per cent on year on
year (YoY) basis. While, cumulative exports for the five months period
(Jul-Nov 2008) also witnessed a significant upsurge of 70 per cent at the
level of 4.4 million tonnes versus 2.6 million tonnes in the same period
of last year.

The low domestic cement demand in the country is due to the

political uncertainty. He said cement exports from Pakistan would
remain buoyant in coming future despite the world economic
downturn and global financial crisis as Middle East has still huge demand
of cement. Oil producing countries of the Middle East would require
massive housing and construction works in years to come hence, a
huge demand of cement is still present. Segregating the data,
weight of sea based cement exports during the month was recorded
at 66 per cent in overall cement exports if compared with 52 per cent
in November 2007. Furthermore, cement exports to India during the
month were recorded at 67,000 tonnes, which is lower when
compared with the previous monthly average of 100,000 tonnes.

However, following the recent terror attacks in Mumbai, the

Indian cement industry is now sensing an opportunity to demand a
curb on Pakistan cement imports. In this regard, Indian cement
industry is now approaching Indian government to review its trade
talks with Pakistan with respect to cement, which could probably
lead to a decline in Pakistan cement exports to India.

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 2.15 Cement sector to face rising costs,
slowdown in demand in fy09:
The fiscal 2008-2009 is being marked as a challenging year for cement
manufacturers as the sector would face the rising costs and a slow down
in demand with exports growing by 50 per cent during the period.
The cement sales showed strong growth of 24pc as exports registered a
growth of 147pc over the period and played a key role while local sales
remaining subdued with 6 percent growth with regional capacity
expansions yet to come online, local cement manufacturers remain in a
strong position to capitalize on export sales over fiscal 2009.
They said that rising input costs, particularly coal and a high interest rate
scenario are likely to keep pressure on the bottom line. However,
increasing exports should help the manufacturers pass on the impact.
According to the latest numbers issued by the All Pakistan Cement
Pakistan Association (APCMA), cement dispatches for Jun 2008 summed
up to 2.77 million tons and a shift in trend from local to export sales is
evident. Around 67 percent of total dispatches were local sales while the
remaining 33percent are attributed to exports with a significant increase
over last year; in Jun 2007 exports accounted for about 18percent of
total dispatches.
Cement sales for fiscal 2008 registered at 30.11mn tons with exports
contributing approximately 26percent compared to 13percent in fiscal
2007.
Talking about exports sales, which may boost margins, the industry
sources said that cement manufacturers spent most of last year building
relationships with foreign clients and applying for quality certificates. The
exports sales are expected to increase further during fiscal 2009.
There is expectations that higher exports would help in boosting margins
following the dual effect of reducing excess supply in the local market
which will help prevent a price war and economies of scale. Once
regional capacities come online, export growth is expected to slow down
especially in India and the Middle East. However, local manufacturers are
also exploring other potential markets such as Sri Lanka, Africa and
Europe to offload their surplus capacities. Local demand is also expected
to pick up once political and economic uncertainty clears.

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Local cement demand fell 13 percent in
FY09:

Pakistan cement sector ended FY09 with local sales witnessing a meager
2 percent Y-o-Y growth at 30.8 million tonnes, data released by All
Pakistan Cement Manufacturers Association said.

According to the data, the growth in overall cement sales mainly came
from the record high cement exports during the year.

“After six years of consecutive YoY growth, the domestic cement market
depicted a declining pattern in the wake of lukewarm construction
activities amid economic slowdown, high interest rates, liquidity crunch
and cut in infrastructure spending both in public and private sectors,”
Muhammad Rehan Khan, analyst at First Capital said.

Considering the fact that there is a direct relationship between the

economic growth and cement demand of the country, Pakistan’s cement
industry has started to bear the brunt of ongoing economic slowdown
with a notable decline in domestic dispatches of the year.

Local cement demand witnessed a decline of 13 percent Y-o-Y in FY09 at

19.4 million tonnes versus 22.4 million tonnes in FY08. As per data,
northern cement market recorded a decline of 17 percent at 15.9 million
tonnes, whereas the southern market posted a growth of 4 percent at 3.5
million tonnes during FY09.

As far as dispatches of June 2009 are concerned, it remained 11 percent

higher at 1.84 million tones over the preceding month’s level of 1.65
million tonnes. However, this still depicts a fall of 1 percent on Y-o-Y
basis.

Despite global economic turmoil, the country’s cement exporting players

have managed to depict upbeat performance by exporting 11.40 million
tonnes of cement – an all time high level depicting a phenomenal growth
of 47 percent. “This is indeed a remarkable progress since the start of
exports in FY02 when the industry was only able to export 0.11 million

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tonnes of cement – comparing with FY09’s cement exports this translates
into a CAGR of 95 percent”.

Interestingly, during June 2009, the industry also achieved the highest
ever monthly exports of 1.22 million tonnes with 35 percent capacity
utilization.

However, during FY09, domestic cement plants operated at 74 percent

capacity utilization level as compared to 81 percent in the last year. The
decline in utilization level was mainly the function of lower domestic
demand & addition of new capacities during the year.

The utilization for the domestic market stood at 46 percent, as against

the previous year’s level of 60 percent. On the other hand, the utilization
level for export sales recorded at 27 percent versus 21 percent in FY08.
The rising export demand helped the local cement industry to operate at
an optimum level during the year, he said.

With the shrinkage in domestic cement demand, Pakistan’s per capita

cement consumption at the end of FY09 is recorded at 120 kg versus 139
kg a year earlier - representing a decline of 14 percent.

The current level of per capita cement consumption ranks Pakistan as

one of the lowest penetrated markets in the region, therefore indicating
a vast potential for cement demand growth in the longer run, analyst
said.

During the last fiscal year FY09, cement industry witnessed additions of 5
million tonnes capacity (7 million tonnes in FY08). Now, the total cement
production capacity of the industry stands at 42 million tons as against
the end-June level of 37 million tonnes.

Cement price to go up

All Pakistan Cement Manufacturing Association (APCMA) is all set to

increase the prices of cement by 5 to 6 rupees per bag in the next couple
of days due to hike in their cost of production, reliable sources told The
Nation on Tuesday.

An official of APCMA told that due to higher prices of petroleum products,

the cost of production had increased which was compelling the

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manufactures to enhance the prices of cement by Rs 5 to Rs 6 per bag.
He further said that on one side, the government provided some relief to
the cement industry by decreasing the federal excise duty (FED) in new
federal budget but, on the other, it increased the prices of petroleum
products, which enhanced the cost of production.

It is pertinent to mention here that Federal Board of Revenue (FBR) in the

relief measures for the ongoing fiscal year, 2009-10, has reduced the
FED on cement from Rs 900 per metric tonne to Rs 700. The decision
was aimed to provide cement at cheaper rates to the consumers to
encourage construction activities in the country. The APCMA on this cut
the prices by Rs 10 per bag and brought it to Rs 345. However, now it
would be raised to Rs 350 per bag in the next two to three days.

The government on July 1 increased the prices of petroleum products by

10 to 15 per cent, which resulted in hike of prices of all commodities.
Economic slowdown, uncertain political and security situation and
budgetary constraints hampered construction activities in the country in
the last fiscal year and resultantly, local cement production was dropped
by 14pc. Last year, government cut the Public Sector Development
Programme (PSDP) by Rs 118b, from Rs 337b to Rs 219b, due to
economic meltdown and this was the major reason that affected the sale
and demand of cement. However, the official of APCMA was optimistic
that the cement industry would boost in the ongoing financial year
(2009-10), as the government had increase the volume of PSDP in the
current budget.

Cement industry fears plant closures amid falling

prices:

Many cement plants would be shutting down in the near future if the
current cement market prices prevail any longer, a senior executive of
DGK Cement revealed. Talking to journalists visiting the DGK Cement at
Khairpur, he said that at present the most efficient cement factories in
Pakistan are suffering a loss of Rs35 to Rs45 per bag and only the units
with capacity to sustain the loss will survive. General Manager Works DG
Khan Cement plant Khairpur Dr. Arif Bashir said that the cement industry
is facing over Rs75 billion of loans, a steep loss curve of Rs40 per bag in
the local market and uncompetitive prices in the international market. In

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his presentation on the cement sector of Pakistan, Dr Arif Bashir said that
while the cost of production is high, owing to rising fuel and energy
costs, the domestic demand of cement has dropped by 13.44 per cent in
2009. The only saving grace for the cement industry at present was that
cement exports increased by 47.4 per cent, he added. Bahsir said that
the cement industry has invested around $6 billion in expanding its
capacity from 16.72 million tons in 2002 to 41.76 million tons in 2009.

The industry has contributed Rs30 billion as direct taxes to the

exchequer, he added. Pakistan, he said has exported over 11 million tons
in 2009, earning foreign exchange of about $750 million. The time to act
and capture the global market is now as the cement industry of Pakistan
would face tough competition in the export market when Indian, Iranian
and Saudi Arabian plants would come on stream and enter the exports
market. Replying to a question about what could be the solution; Dr.
Bashir suggested that the government should work out a formula in
consultation with the cement manufacturers to decide the floor price
allowing a margin of profit. He also suggested that the government can
also help the cement industry from closing down by giving them some
relief on the high cost of fuel energy, as this constitutes 45 per cent of
the over-all cost of production and if the government helps the cement
industry the market demand for Pakistani Cement will reap massive
foreign exchange and industrial development in Pakistan. If the
government immediately helps the industry by removing the
transportation bottlenecks in the way of exports of consignments to India
and to the ports of Karachi, the existing world demand, he said, shows
that we can increase our exports to India and other African and Middle
Eastern countries.

2.16 Pakistan’s Foreign Investment Policy:

The investment policy regime has been liberalized with most economic
sectors open for foreign involvement.

The Government has therefore liberalized its investment policy,

promoted a stronger and faster enabling framework and opened up
almost all sectors for foreign investment while offering tax and other

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incentives for investment as well as enabling 100% ownership for foreign
investment in many areas. The new Investment Policy provides equal
investment opportunities for both domestic and foreign investors.
The Government has decided to give “priority industry” status for foreign
investment into information technology, oil and gas exploration, mining,
leather production, corporate farming, livestock and dairy, financial
business and trade, infrastructure, tourism, housing and construction
sectors. Complete freedom of choice has been provided on where to
locate an activity

Employee issues
Pakistan is one of the countries having low labor cost as an advantage.
But like U.K, Pakistan also have minimum wage legislation, laws of
prohibition of child labor, working conditions at work, health and safety
regulations and labor rights Act, and termination of employment laws.

Strength Of Sector Which Attract Investors:

Pakistan provides relatively strong protection for foreign investors, it
ranks

19th worldwide on protecting investors, according to World Bank report

Doing Business In South Asia 2008.It attract in many ways:

Availability Of Raw Material:

Abundance of natural resources makes it an ideal place to set-up cement

plants. And which can give high turnover to foreign companies in cement
industry.

Duty Free Port of Gwadar:

Pakistan was previously relying on its Karachi port for the shipment of its
imports and exports. It was over crowded and expensive. Pakistan has
built a new deep sea port at Gwadar in the strategically important
Province of Balochistan bordering with Iran. This port has been declared
duty free, on top of this cheaper labor makes it the cheapest port in the

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whole South Asia region.

SHARE IN ECONOMIC GROWTH BY EMPLOYEEMEN:

As expansion cycle of Pakistan cement industry grew day by day due to

few barrier of entry in market, higher profitability ratio, and government
privatizations. So we have many cement manufacturers which generate
more and more of employment possibilities. Today cement industry is
contributing 3% of total employment. That is huge no of employees
working as engineers, managers, masons, supervisors, etc.

Government Attitude toward Sector

Tax structure

Instead of providing any relief in the budget, the sector was further
penalized with a 3% increase in sale tax to 18%. So far, the
manufacturers have been able to pass on the increase to consumers but
the situation is unlikely to continue. However, the possibility of formation
of a cartel cannot be ruled out. Since massive investment has been
made in the sector, any reduction in price of cement can reduce profit
margin of all the units.

Formation of cartel and fixation of price at a level high enough to cover

increasing cost of inputs and ensure reasonable profit margin may
provide short-term relief to the manufactures. Such a cartel may be
against the interest of consumer but can help the manufacturer to
survive with some dignity. Formation and smooth operation of a cartel is
generally difficult but in the case of cement industry it may not so
because the only restriction could be on the level of capacity utilization
along with a modest uniform reduction in the price of cement. However,
the units are in the diverse state of financial health, enjoy different level
of competitive advantage, and therefore need different prescriptions to
maintain their profitability.

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Excise Duty

In budget 2008-2009 the federal excise duty on cement has been to Rs

900 per tonnes from the existing base of Rs 750 per tonnes.

Current Duty Rate & Subsidies Provided By

Government:

The Cement industry in Pakistan has to pay Federal Excise duty at

Rs.950/ton as compared with Rs. 750 / ton, 16% sales Tax as compared
with 15% and high utilities bills like electricity, gas etc

On top of all the issues is the harassment of the industry by different

government departments, industry sources said. They said that Pakistan
Standard Control Authority had filed criminal cases against the cement
manufacturers.

The Competitive Commission of Pakistan is also chasing the industry,

accusing it of forming cartel and initiated cases against a number of
units, sources said.

The adverse impact of slow exports of cement to India started to emerge

in December 2008 as lesser orders have been received by exporters.

In the first quarter of 2008-09, a spokesman for All Pakistan Cement

Manufactures Association (APCMA) remarked that any setback to cement
industry may increase the price to as high as Rs. 1600/- approx per bag.

Price to manufacture one bag of cement has risen to Rs. 375.60 / bag in
2008 from Rs. 228.21 / bag in 2007. Electricity has risen by 20%.

Ministry of Science and Technology has levied an additional tax factor at

MBA ® Page 55
0.1% of ex factory price which amounts to Rs. 3 per bag.

CHAPTER# 3
FRAMEWORK OF ANALYSIS

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 3.1 HYPOTHESIS ANALYSIS

A hypothesis (from Greek ὑπόθεσις [iˈpoθesis]) consists either of a

suggested explanation for an observable phenomenon or of a reasoned
proposal predicting a possible causal correlation among multiple
phenomena. The term derives from the Greek, hypotithenai meaning "to
put under" or "to suppose." The scientific method requires that one can
test a scientific hypothesis. Scientists generally base such hypotheses on
previous observations or on extensions of scientific theories. Even though
the words "hypothesis" and "theory" are often used synonymously in
common and informal usage, a scientific hypothesis is not the same as a
scientific theory. A hypothesis is never to be stated as a question, but
always as a statement with an explanation following it. It is not to be a
question because it states what the experimenter thinks will occur.
Hypotheses are usually written in the "if-then form": If X, then Y.

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3.2 TERMINOLOGIES OF INDUSTRY
APCMA All Pakistan Cement Manufactures Association

UK United Kingdom

FED Federal excise duty

FBR Federal Board of Revenue

PSDP Public Sector Development Programme

APCMA All Pakistan Cement Pakistan Association

FY Financial year

MSRC Moderately Sulphate Resisting Cement

PACRA Pakistan Credit Rating Agency

GST General Sales Tax

HFRC Highly Sulphate Resisting Cement

OPC ordinary Portland cement

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SRPC sulfate-resisting Portland cement

ASR Alkali silica reaction

WAPDA Water and power development authority

RS Rupees

GCC Gulf Cooperation Council

GDP Gross domestic product

3.2.1 DATA COLLECTION

Data collection is a term used to describe a process of preparing and

collecting data - for example as part of a process improvement or similar
project. The purpose of data collection is to obtain information to keep on
record, to make decisions about important issues, to pass information on
to others.

1. Primary data

2. Secondary data

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1. Primary data: -
In primary data collection, you collect the data yourself using methods
such as interviews and questionnaires.

2. Secondary data: -

All methods of data collection can supply quantitative data (numbers,

statistics or financial) or qualitative data (usually words or text).
Quantitative data may often be presented in tabular or graphical form.
Secondary data is data that has already been collected by someone else
for a different purpose to yours. For example, this could mean using:

• data collected by a hotel on its customers through its guest history

system

• data supplied by a marketing organization

• annual company reports

• Government statistics.

3.2.2 Data Processing

Data processing, data are defined as numbers or characters that represent

measurements from observable phenomena. A single datum is a single
measurement from observable phenomena. Measured information is
then algorithmically derived and/or logically deduced and/or statistically
calculated from multiple data. (Evidence). Information is defined as either
a meaningful answer to a query or a meaningful stimulus that can
cascade into further queried.

I collected lot of rice related data through the different web sites like

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google.com. My topic is cement Production and the role of bank in this
field. So I was searching the data about the role of bank in the production
of rice.I wanted to know about its reasons and their impact on Pakistan’s
economy and I got through my research.

3.2.3 Hypothesis Testing

Hypotheses: A hypothesis is a specific statement of prediction. It

describes in concrete (rather than theoretical) terms what you expect
will happen in your study. Not all studies have hypotheses.
Sometimes a study is designed to be exploratory. There is no formal
hypothesis, and perhaps the purpose of the study is to explore some
area more thoroughly in order to develop some specific hypothesis or
prediction that can be tested in future research. A single study may
have one or many hypotheses.

(1) High interest rate is the biggest hurdle in the credit enhancement in
cement sector.

(2) Banks can not Assessment of overall loan requirement because of

manufacturing company have not pay off power due to shortage of
demand exports.
(3) In the first quarter of 2008-09, a spokesman for All Pakistan Cement
Manufactures Association (APCMA) remarked that any setback to cement
industry may increase the price to as high as Rs. 1600/- approx per bag.

Price to manufacture one bag of cement has risen to Rs. 375.60 / bag in 2008
from Rs. 228.21 / bag in 2007. Electricity has risen by 20%.

(4) On top of all the issues is the harassment of the industry by different
government departments, industry sources said. They said that
Pakistan Standard Control Authority had filed criminal cases against
the cement manufacturers.

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(5) The adverse impact of slow exports of cement to India started to
emerge in December 2008 as lesser orders have been received by
exporters.

3.2.4 Analysis of Data

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LUCKY Cement Company Limited

1. Current ratio: current asset

Current liability

2009: 8,887,578= 1.10 %

8,059,980 2009 2008

2008: 7,896,754= 1.02 % 1.10 1.02

7,686,897

2. Quick, or acid test, ratio: current assets- inventories

Current liability

2009: 654,014 – 137,451 = 0.19

2628,010

2009 2008
2008: 5294,083 – 230,089 =
2.06 0.19 2.06

2454,761

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3. Debt equity ratio: Total debts
Shareholder equity
2009 2008
2009: 11755,812 = 1.21%
9690,689 1.21 0.34

2008: 3170,512 = 0.34%

9283,981

4. Debt ratio: total debts

Total assets 2009 2008

2009: 11755,812 = 0.54 % 0.54 0.25

21,446,501

2008: 3170,512 = 0.25 %

12,454,493

FAUJI CEMENT COMPANY:

1. Current ratio: current asset

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 Current liability

2009: 1654,014 = 0.62 %

2628,010 2009 2008

0.62 2.1
2008: 5294,083 = 2.1 %
2454,761

2. Quick, or acid test, ratio: current assets- inventories

Current liability

2009: 654,014 – 137,451 = 0.19

2628,010

2009 2008
2008: 5294,083 – 230,089 =
2.06 0.19 2.06

2454,761

3. Debt equity ratio: Total debts

Shareholder equity
2009 2008
2009: 11755,812 = 1.21%
9690,689 1.21 0.34

2008: 3170,512 = 0.34%

9283,981

4. Debt ratio: total debts

Total assets 2009 2008

2009: 11755,812 = 0.54 % 0.54 0.25

21,446,501

2008: 3170,512 = 0.25 %

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 12,454,493

3.3 EXPECTED PROBLEM OF ANALYSIS

These problems may cause the production in Pakistan.

1. High excise duty as compared to other countries.

2. Heavy taxes on the cement bag itself.

3. The production costs of cement in Pakistan are high.

4. Electricity rates and transportation costs are also high because of the
high prices of POL in a falling world oil market.

5. The financial burden of the industry keeps soaring; consumption in the

country has fallen sharply.

Any of the above problems may cause the rice production negate

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Chapter# 4
IMPLICATION AND CONCEPTUAL
FRAMEWORK OF CEMENT
MANUFACTURING

4.1 COMPARISION OF CEMENT INDUSTRY & ITS

MEASUREMENT

Ratios LUCKY CEMENT FAUJI CEMENT

COMPANY COMPANY

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 1-Current Ratio
0.62

2-Quick Ratio
0.19

3-Debt Equity Ratio

1.21

4- Debt Ratio
0.54

4.1 CEMENT MANUFACTURING & ITS

COORELATION WITH BANKS

4.2 FUTURE SCOPE OF CEMENT

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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.

The last few years have been a golden period for cement
manufacturers,when the government increased spending on
infrastructure development. High commercial activity and rising demand
for housing on account of higher per capita income has kept cement off
take growth in double digits.

During the financial year-07, cement sales registered a growth of 31

percent to 17.53 million tones as against 13.5 million tones sold
last year. The cement sales during July-February-08 showed an
increase, both in domestic and regional markets to 18.17 million
tones. The domestic sales registered an increase of 7.2 percent to
14.4 million tones in the current period as compared to 13.5 million
tones last year whereas exports stood at 3.7 million tones as
against 1.8 million tones in the corresponding period last year,
showing an increase of 110 percent.

The cement sector is contributing Rs 30 billion to the national

exchequer in the form of taxes. This sector has invested about Rs 100
billion in capacity expansion over the last four years. 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.

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 forecasted to grow 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

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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 tones, which rose
to 37 million tones by the end of FY07.

The cement manufacturers added eight million tones to the capacity and
the total production was expected to be 45 million tones by the end of
2010. It may result in a supply glut of 11 million, nine million and seven
million tones in 2008, 2009 and 2010 respectively.

Despite an excess supply of 11 million tones in 2008, it is estimated

that the price would increase in domestic as well in regional markets
that may surely boost the profitability and give relief to the
industry on its new investment.

The cement demand would increase in future due to government policies

as the Pakistan People’s Party’s (PPP’s) slogan has always been ‘roti,
kapra aur makan’ (bread, clothing and housing). In this regard a
statement of the new government confirmed that it would encourage
industries and construct small dams.

As cement capacity is increasing to cater the rising domestic and

regional demand, it started facing a tougher time because of price
fall after the first quarter of FY06 due to increase in supply, energy
prices started surging and higher expansion led to mounting finance
and depreciation costs. After reaching Rs 430 per bag at the retail
level earlier last year, cement prices fell sharply during 2007.
Average cement prices were Rs 220 per bag as on April 27, 2008, as
compared to Rs 315 per bag in 2006.

However, the cost and exports may be affected due to weakness of the
US dollar causing coal, electricity charges and freight prices,
comprising 65 to 70 percent of the cost. The PSDP allocation has been
cut by Rs 75 billion and feared further cuts would curtail cement
demand. 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.

Moreover, this rising trend is expected to be short-lived due to

higher interest rates and inflationary concerns are likely to make it
disadvantageous for investors to enter the construction industry. In

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addition to this, to control real estate prices the government is
considering imposing a tax on it.

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. 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 stabilize 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. The success of the sector depends on exports, its profitability
from depressed local prices and cost appreciation. 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.

The targets for exports for 2009 and 2010 are set to be 9.99 million
and 10 million tones respectively. Currently, the export demand is
expected to be from new inductee India along with other countries like
Gulf Cooperation Council (GCC) countries, due to rising oil prices-led
economic growth. More countries like South Africa to make the football
stadiums for the World Cup and Sri Lanka are also expected to approach
Pakistani companies for cement imports. However, export depends on
factors such as: ability to produce cement at Rs 85 per bag. Export
strategy should be made for at least three years, 2008-10, after which
new plant will start production in the region. In the meantime industry
should explore new markets for export or ready to lower prices of
cement in local market.

The sharp decline in cement prices were due to domestic competition

among producers has dampened the profitability of the industry. To cope
with this situation the manufacturers have strengthen cartel to set
minimum cement prices. The example was marketing arrangement that
increased cement prices to the extent of 20 percent despite coal prices

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have gone down in the international market to $124 from nearly $ 140 in
November 2007 to January 2008.

To break-up cartel the Competition Commission of Pakistan raided the

offices of Association of Cement Manufacturers of Pakistan and
confiscated computers and office record. The association condemned
this action and said it is against business norms. They said the
commission is blaming cement manufacturers for making a cartel for the
last 10 years but could not able to prove it. The capital structure of
cement companies may change as most of the expansions during last
two to three years have been debt financed and companies are expected
to retire these debts rapidly during next three to five years. Moreover,
the slow down in economy may occur due to political uncertainty which
might result in reducing cement demand in future. However, in case of
construction of hydro-powered dams, there will be a sudden jump in the
local sales of those companies located near these dams.

Conclusion
Cement industry is indeed a highly important segment of industrial
sector that plays a pivotal role in the socio-economic development.
Though the cement industry in Pakistan has witnessed its lows and highs
in recent past, it has recovered during the last couple of years and is
buoyant once again. With its 27 factories producing 14.68 million tones
to 10.4 million tones in the north and 4.2 million tones in the south - it
pays a heavy 45 per cent excise duty compared to 25 per cent in India
and 10 percent in the Philippines, Indonesia and Egypt and 7 per cent in
Thailand. In addition there are heavy taxes on the cement bag itself. The
production costs in Pakistan are high. The electricity rates and
transportation costs are also high because of the high prices of POL in a
falling world oil market. Wages have also been rising. At the current

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point cement manufacturers and the government have to take concrete
steps even to keep units in production. On the inputs side, necessary
steps are required to contain the increasing energy cost. The
government must also look into the case of providing subsidy on freight
to the exporters of clinker and cement. The prescription is to optimize
capacity utilization. Pakistan currently has a per capita consumption of
120kg of cement, which is comparable to that for India at 135kg per
capita but substantially below the World Average 270kg and the regional
average of over 400kg for peers in Asia and over 600kg in the Middle
East. Over the years a number of tax policy and administrative measures
have been introduced to attract investment and facilitate growth of the
cement industry. The Government has reduced central excise duty (CED)
on cement in the budget for 2007-08 in order to boost construction
activity. In Pakistan APCMA plays a significant role in projecting the
cement industry to the Government and coordinating various activities in
respect of formulation of Government policies for the cement industry.

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