Pakistan has a well-developed cement industry with abundant raw material availability in the country. The country ranks amongst the top five exporters and 14th largest cement producer in the world. Cement is the prime ingredient used in the construction industry. Cement consumption has a direct correlation to economic growth and improvement in the living standards of society. The cement industry in Pakistan is currently thriving, thanks to the country’s booming construction industry and high demand for residential and commercial developments within the country. The growth can be seen affecting both the commercial and residential sectors, with many new housing developments taking root, in response to increasing demand for luxury gated communities, and raising living standards across the country.
In Pakistan, infrastructure projects and the housing sector are the key drivers for consumption of cement. Going forward, consumption of cement from these two sectors is projected to increase.
- Increasing urbanization with urban areas having lower number of people per household vis-à-vis rural areas creating additional demand for housing units.
- Significant backlog of housing units estimated at 9 million units and announcement of various plans by the government to address this shortfall.
- New affordable mega housing projects (Bahria Town, DHA, and LDA City).
- Infrastructure projects worth $9.8 billion are planned to be undertaken under China-Pakistan Economic Corridor.
- Spending for infrastructure projects as per allocations made under Public Sector Development Programs particularly for construction of dams, roads and bridges.
- Large infrastructure projects include Gwadar Airport, Gwadar Deep Sea Port, Hydropower project of around 10,000MW capacity and Karachi-Lahore Motorway.
The cement industry of the country can be divided into two separate regions; North & South Zone. North Zone includes provinces of Punjab, Khyber Pakhtunkhwa, Azad Kashmir, Gilgit-Baltistan and parts of Balochistan while South Zone includes provinces of Sindh and Balochistan. There are 19 and 5 cement units in the North and South Region, respectively. Players in the North Zone represent around four fifth of the total rated capacity. Both North and South zones have their separate demand-supply dynamics. Players operating in the South Market have the opportunity to tap a number of export markets thus providing greater room for revenue diversification. Given the stronger local demand in North Zone, reliance on exports is lower; export potential for players in the North Zone is limited mainly to Afghanistan where influx of cheaper Iranian cement and limited construction activity due to withdrawal of allied forces has contributed to decline in exports. While exports to Afghanistan have declined by 35 percent over the last two years, Afghanistan still represents the largest export destination representing 43 percent of total exports. Other major export destinations during the ongoing year include India, Sri Lanka and African countries.
Production capacity of cement manufacturers has more than doubled over the last decade to 45.6m MT/annum. In terms of installed capacity top 5 cement manufacturers (Lucky, Bestway, D. G. Khan, Fauji & Maple Leaf) comprise 58 percent of total installed capacity. Lucky Cement represented the largest share in dispatches during FY15 followed by Bestway Cement (BWCL). As per research conducted by CEMTEC, Pakistan is amongst the three cement hotspots in the world where demand is expected to grow at its fastest. Given the favorable demand outlook and in order to enhance efficiencies, four cement manufacturers (Lucky Cement, D. G. Khan Cement, Cherat Cement and Attock Cement) have announced expansion with additional capacities representing roughly 16% of existing capacity. Moreover, other local cement manufacturers/Chinese investors have shown interest in expansion and setting new cement plants.
Going forward, strong demand outlook and high margins is expected to continue to support profitability of the sector. Any adverse developments on the CPEC front, delay in infrastructure projects (particularly hydropower projects) and significant increase in input prices may pose risk to future profitability growth of the sector.