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Capacity utilization bound to increase

April 22 - 28, 2002

Despite having a strong industrial base, the cement sector in Pakistan was suffering from under capacity utilization due to low demand of the commodity since last many years.

The cement sector in Pakistan is based on 21 units all over the country out of which 20 operative units with an installed capacity of 17 million tons a year. These units were producing only 10 million tons due to low demand in the market mainly because of sluggish economic activity in the construction sector in particular and absence of development projects at the national level in general.

Consequently, the cement sector was running below the installed capacity for the last many years. Despite having a surplus capacity against the local demand the sector was unable to produce more to export due to enhanced production cost and in competitive prices in the international market.

The situation however has started showing positive signs for the cement sector not only at the home front but also in the export sector due to increasing demand of the commodity in Afghanistan.

In order to remove irritants in the way of exports especially to Afghanistan, the government has allowed cement export at zero-rated duty besides other facilities to enable this industry grab a major share in the Afghan market.

According to latest situation, the cement sector has started export to Afghanistan, which has been doubled in the month of March over the previous month due to increase in demand of cement in Kabul.

Badruddin Fakhri, Director Finance and Administration of the Pioneer Cement told PAGE that the manufacturers and exporters are of the view that demand will go up rapidly with the increase in pace of the process of reconstruction in that country. However to compete with other countries we have to reduce the production cost by reducing the taxes on this industry.

Comparing the cost of production in Pakistan and Iran, Fakhri said that the cost of furnace oil in Iran is 30 dollar per ton as against 170 dollar in Pakistan, which clearly gives Irani cement an edge over Pakistan's cement. The only plus point with Pakistani cement was its better quality and lower transportation charges due to close vicinity of Afghanistan.

Recently, a laboratory test confirmed that Pakistani cement is much better than the cement being exported to Afghanistan from other sources especially from Iran. However, difficulty in availability of transport is making it difficult to manage timely delivery of the consignment at the destinations in Afghanistan.

Fakhri said that it is being estimated that at least one billion-dollar will be spent every year on reconstruction process in Afghanistan.

The share of cement sector in that total fund allocation must be around 15 per cent which in term of money comes to $150 million.

According to an assessment around 3 million tons of cement would be required in Afghanistan, however in the presence of Iran in the market Pakistan obviously cannot grab the entire share of the demand mainly due to lower price offered by Iran. Despite all these irritants, Pakistan can have a share of 1.5 million tons export of cement on annual basis, he said.

Meanwhile, Pakistan's cement export which was 15,000 tons from January 17 to Feb 28 of the current year doubled in March as the total export was estimated at 30,000 tons on March 31.

The trend is more encouraging for the current month as the export has doubled over the last months with 8000 tons export in first 10 days.

It is said that the Cherat Cement is the main shareholder with 20,000 tons export of the total 38,000 tons export so far.

As far as the logistics were concerned, the road link between the two countries through Torkham is taking lead with 80 per cent export of cement to Afghanistan.

The unavailability of adequate transport facilities is also becoming an irritant in boosting the cement export from Pakistan to Afghanistan restraining the exporters to take advantage of concession offered by the government on cement export to Kabul.

The exporters were of the view that similar difficulties may confront other sectors as a result of substantial increase in exports to Afghanistan such as fertilizers and other food items including wheat. It is said that due involvement the world food program in market to hire transports at a massive scale to carry foodstuff to Kabul, the transport availability may become a real problem.

In order to ensure plain sailing of the increasing export through land routes to Afghanistan it seems imperative that besides providing enough logistics to the private sector, routes mainly through Torkham in NWFP and Chaman in Balochistan are needed to improve at priority level.

The government's strategy to shift cement production from oil or gas to coal is also bound to reduce the production cost substantially in Pakistan. This price cut advantage must pass on to the consumers to ensure enhanced activity in the construction industry, which is attached with 80 allied industries.