Capacity utilization bound
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
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
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
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
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
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
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.