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12 February, 2008 12:00 am Jump to Comments Cement Industry Compiled by: Mirza Rohail B History & Introduction

Growth of cement industry is rightly considered a barometer for economic activity. In 1947, Pakistan

had inherited 4 cement plants with a total capacity of 0.5 million tons. Some expansion took place in 1956-66 but could not keep pace with the economic development and the country had to resort to imports of cement in 1976-77 and continued to do so till 1994-95. The industry was privatized in 1990 which led to setting up of new plants. Although an oligopoly market, there exists fierce competition between members of the cartel today. The industry comprises of 29 firms (19 units in the north and 10 units in the south), with the installed production capacity of 44.09 million tons. The north with installed production capacity of 35.18 million tons (80 percent) while the south with installed production capacity of 8.89 million tons (20 percent), compete for the domestic market of over 19 million tons. 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 around 80 percent share in total cement dispatches while the units based in the southern region contributes 20 percent to the annual cement sales. Cement industry is indeed a highly important segment of industrial sector that plays a pivotal role in the socio-economic development. Since cement is a specialized product, requiring sophisticated infrastructure and production location. Mostly of the cement industries in Pakistan are located near/within mountainous regions that are rich in clay, iron and mineral capacity. Cement industries in Pakistan are currently operating at their maximum capacity due to the boom in commercial and industrial construction within Pakistan. The cement sector is contributing above Rs 30 billion to the national exchequer in the form of taxes. Cement industry is also serving the nation by providing job opportunities and presently more than 150,000 persons are employed directly or indirectly by the industry. The industry had exported 7.716 million tons cement during the year 2007-08 and had earned $450 million, while is expected to export 11.00 million tons of cement during 2008-09 and earn approximately $700 million. Fiscal Performance 2008-09

Business Recorder reported that Pakistans cement exports witnessed a healthy growth of 65%, to over 6 million tons during 7 months of the current fiscal year mainly due to rise in international demand. The exports may reach to 11 million tonnes and earn approx $ 700 million during 2008-09. The statistics of All Pakistan Cement Manufacturers Association also showed that cement exports had mounted to over 6 million tons in 7 months as compared to 3.62 million tons of same period of last fiscal year, depicting an increase of 2.38 million tons. Cement exports during January 2009 went up by 30% to 0.81 million tons as compared to 0.623 million tons in January 2008. However, slow construction activities in the country during the period badly upset domestic sale of cement, which depicted decline of 15%, to 10.77 million tons as compared to 12.59 million tons of last fiscal year. On MoM basis, local dispatches of cement during January 2009 showed a decline of 8%, to 1.51 million tons from 1.65 million tons of January 2008. Overall dispatches, including export and local sales, reached 16.77 million tons during July to January of 2008-09 as against 16.20 million tons of last fiscal year, depicting an increase of 3%. By September 2009, after witnessing substantial growth in all three quarters of fiscal year (FY) 2008-09, cement sector concluded the fourth quarter with a handsome growth of 1,492 percent on yearly basis, All Pakistan Cement Manufacturers Associations report revealed on 29th September 2009. Higher retention prices (up 59 percent) and high rupee based export sales amid rupee depreciation (20 percent) drove profits up north. However, this growth is magnified, as FY2007-08 was an abnormally low profit period for the sector. Moreover, the performance is skewed towards large players with export potential as profitable companies in both years posted increase of just 109 percent, said analyst at JS Research Atif Zafar. He said that cumulative profitability of companies in FY09 stood at Rs 6.2 billion or $78.2 million as compared to Rs 386 million or $6.2 million depicting a massive growth of 1,492 percent. Companies with profits in both the years posted 109 percent earnings improvement. Though total dispatches were down 2 percent, net sales grew by 55 percent to Rs 101.4 billion or $1.3 billion on the back of higher net retention prices (up 59 percent) and improved export based revenues. Cost of sales/tonne also rose by 33 percent on yearly basis amid higher realised coal prices and inflationary pressures, the analyst maintained. Production Capacity In Pakistan, there are 29 cement manufacturers that are playing a vital role in the building up the countrys economy and contribution towards growth and prosperity. After 2002-3, most of the cement manufacturers expanded their operations, and increased production. This sector has invested about $1.5 billion in capacity expansion over the last six years.

The operating capacity of cement in 1991 was 7 million tons, which increased to become 18 million tons by 2005-06 and by end of 2007 rose to above 37 million tones, and currently the production cpapacity is 44.07 million tonnes. Cement production capacity in the north is 35.18 million tons (80 percent) while in the south it is only 8.89 million tons (20 percent). The cement manufacturers in 2007-08 added above eight million tons to the capacity and the total production was expected to exceed 45 million tons by the end of 2010. It may result in a supply glut of seven million tons in 2009 and 2010. Actual Cement Production (in million tons) According to Government Board of Investment, 2001-02 9.83 2002-03 10.85 2003-04 12.86 2004-05 16.09 2005-06 18.48 2006-07 22.73 2007-08 26.75 2008-09 20.28