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Cement-for the growth of economy

Cement in road construction will bring multifaceted economic benefits

Nov ,12 - 18, 2001

Cement industry, which generally plays a significant role in development and growth of economy, is running below 50 per cent of the installed capacity due to visible decline not only in the construction industry but overall economic activity in the country.

The decline in this important sector is reflected in the fact that capitalization worth Rs60 billion in 1994 has currently come down to the level of Rs2.5 billion which is enough to say about the state of affairs in this sector.

Out of the 18 cement units operating in the country two being to public sector while the rest in the public sector are running below 50 per cent of the production capacity. The cement industry, which is an important part rather basic part of the construction industry, provides fuel for creating job opportunities to the millions in every country.

Badruddin Fakhri, Director Finance of Pioneer Cement Limited told PAGE,

that out of the total capacity of 16 million tons the demand has been relegated to the level of 10 million tons a year. The remaining surplus capacity going without use.

Badruddin suggested that in order to activate this important sector, the government should include this sector in its development plans especially in road construction. He pointed out that the recently announced project of Northern Bypass in Karachi if allowed to be constructed by using cement can be helpful in generating economic activity in this sector. Citing the example of other countries where cement has replaced the bitumen in road construction, Badruddin said that cemented roads not only help the cement industry to grow but also help in reducing fuel consumption as much as 14 per cent costing around $250 million every year.


Pakistan is rich in the deposits of limestone, clay and gypsum, which constitute basic raw materials for manufacturing cement. Although a large number of cement varieties are produced in different countries of the world, Pakistan has been producing following types of cement.

1. Ordinary Portland Cement
2. Portland B.F. Slag Cement
3. Sulphate Resisting Cement
4. White Cement.

Production capacity

At the time of Independence in 1947, Pakistan had inherited four cement plants having total installed capacity of 0.5 million tons, all of which were controlled from India. These plants were however closed after operating for more than 50 years. Consequently, Pakistan had to import cement during 1976 to 77. After the change in government in 1977, private sector was allowed to establish cement plants. As a result, seven projects having a capacity of 2.54 million tons were installed in private sector and simultaneously, State Cement Corporation of Pakistan also put four projects having a capacity of 1.6 million tons, enhancing the total capacity of the country to over 8.5 million tons by the end of 1990.

Demand pattern of cement

During the decade ending in 1970 average demand of cement increased @ 7.2 per cent per annum to 1.97 million tons. During the decade ending in 1980 growth in demand declined to 6.8 per cent per annum, whereas during the decade ending in 1990 demand grew @ 7 per cent per annum to 7.47 million tons. Based on this trend, it was projected that demand will grow to 14.73 million tons by the year 2000. Unfortunately, due to political instability the demand of cement declined from historical growth of 7 per cent to 2.8 per cent during nineties and as a result demand could only touch 9.91 million tons by the close of year 2000. The capacity on the other hand had gone up to 16 million tons by the end of 2000, leaving a huge idle capacity of over 6 million tons.

Per capita consumption

Cement consumption is considered to be a representative denominator of the state of development of any country. Per capacity cement consumption in Pakistan works out to 72 kg per head per annum which is one of the lowest in the world.

A comparative view of per capita consumption

Pakistan 72, India 89, Sri Lanka 105, Philippines 220, Mexico 251, Iran 274, Syria 369, China 410, Turkey 512, Thailand 600, Malaysia 870 and Taiwan 1004.

This state of affairs strongly suggests that Pakistan have to catch up in its development plans by reallocating its resources to infrastructure development, housing and industrialization. Furthermore, switching over to concrete roads can also enhance cement consumption, which have much longer life than bitumen roads. Studies carried out in India have proved that vehicles plying on concrete roads save 14 per cent on fuel consumption. Savings on fuel consumption will run into billions of rupees annually.


Driving on concrete highways reduces heavy truck fuel consumption by as much as 11 per cent according to a National Research Council (NRC) study conducted in Canada.

The study, commissioned by the Cement Association of Canada, adds to growing evidence that concrete highways offer greater cost efficiencies to both government and the taxpayers. Concrete highways outperform and outlast other road surfaces in terms of durability, maintenance and repairs. NIRC study concluded that less fuel is used because concrete highways have rigid surface, which creates less rolling resistance than asphalt. Rolling resistance is considered a significant factor in fuel consumption. Using concrete to build four lane highways and urban corridors makes good economic sense. There are also environmental benefits to reducing fuel consumption.

Canal lining is another area, which can consume magnificent amount of cement. This will also save wastage of about 40 per cent of irrigation water besides easing out the problem of waterlogging which is a constant threat to our agriculture lands.


Pakistan with about 6 million tons surplus capacity is surrounded by a number of countries which have to import cement, either because they do not have limestone reserves or are short in limestone deposits.

Following is the annual demand of cement importing countries:

Bangladesh : 5 million tons
Sri Lanka : 3 million tons
Singapore : 5 million tons
Egypt : 4 million tons
Myanmar : 1 million tons
Vietnam : 1 million tons
Malaysia : 2 million tons

Pakistan has historically been exporting cement whenever it had surplus capacity. Pakistan has exported considerable amount of cement during decades of sixties and seventies besides meeting the entire need of the then eastern part of the country, which are now Bangladesh.

Currently, the export of cement has almost come to a standstill mainly because of high cost of production due to high rate of taxation and freight charges. Pakistan can still export cement provided international prices are viable for Pakistan cement companies. Unfortunately, cost of production in Pakistan is higher than competing countries like Indonesia, China, Korea and India due to higher cost of production. International prices of cement have come down due to over capacity of about twenty million tons cement in the Asia-Pacific region. With higher cost of production, Pakistan cannot compete at these prices. Under the circumstances, cement export can only be viable if cement companies are allowed export rebate to cover deficit in variable-cost and meet the export expenses and some margin of to cover fixed overheads.


Although cement constitutes as one of the basic necessities for shelter, yet in Pakistan taxation of cement is the highest in the region. India, excise duty is being charged @ Rs350 per ton whereas in Pakistan it is charged @ Rs1000 per ton. Sales tax on cement in India is 10 per cent. Whereas in Pakistan it is 15 per cent.

Overall taxation on cement in Pakistan is 37 per cent, India 18 per cent, Indonesia 10 per cent, Philippines 10 per cent, Iran Nil; Egypt 10 per cent while it is 7 per cent in Thailand.

Production cost

Energy constitutes more than 50 per cent cost of production of cement. Until fifties cement industry was using coal as fuel for clinkering of raw material. After discovery of natural gas, all cement plants were converted into gas. In early eighties, the then government decided to preserve gas for fertilizer and domestic consumption. All the cement plants were advised to switch over to furnace oil. Uptil now almost all the plants have been operating on furnace oil except for 2/3 plants who succeed in getting gas for few months in a year. Gas allowed to few plants in the recent past is being strongly contested by other plants. Since furnace oil prices have taken a quantum jump during recent years which have gone from Rs5000 to even 11500 per ton has resulted in increasing the cost of production almost to double.

The increased level of furnace oil prices strongly suggests that Pakistani cement industry should switch over to coal firing system. Almost 90 per cent cement plants world over use coal for clinkering. Pollution is no more a problem due to advance technologies arresting gas emissions. Cost of coal firing is estimated to be 2/3rd of the cost of furnace oil, if imported and local coal is used in the ratio of 50 per cent. However if huge coal deposits in Thar and Sondha, which have lower sulfur content, are developed, saving in fuel cost will be more than 50 per cent. The government will also be saving foreign exchange if the industry switches over to coal.

Another factor enhancing cost of production is the electricity prices, which is again the highest in Pakistan in the region. Exorbitant increase in electricity charges during last couple of years not only resulting tremendous increase in cost of production in every manufacturing sector but is responsible for arresting the economic growth of the country.

Cement prices

After privatization in 1991-92, cement prices escalated exorbitantly from Rs2,055 per ton in 1992 to Rs3,300 per ton in 1994, a rise of over 60 per cent within a span of two years. Thereafter efforts were made to pass on the impact of escalation in prices of furnace oil, electricity and other increases in cost of production to the prices of cement, but due to fierce competition amongst cement manufacturers prices never remained stabilized. The price although went as high as Rs4,400 per ton in the year 2000 but started declining since September 1999 when sales tax was levied which triggered a price war amongst all the cement companies. At present the cement price is between Rs220 to Rs230 per bag and is likely go down further due to sharp decline in demand. Another factor, which may bring down cement prices, is the trend of switching to coal fired system for which the government has announced some better incentives for cement manufacturers.