Growing demand attracting investment


May 09 - 15, 2005



The credit of working either on 100 percent or in some cases over capacity utilization probably goes only to the cement sector has emerged as the most vibrant segment of the economy in Pakistan.

The phenomenal demand growth, however, relative to the economic turnaround in the country especially in view of booming housing and construction industry besides increasing exports to Afghanistan, Dubai and other parts of UAE and in the Far Eastern countries in the aftermath of devastating Tsunami waves in Malaysia and adjoining areas.

Though almost all the leading cement manufacturing units are currently engaged in expansion of their existing plants of setting up new projects in view of growing demand, yet price factor might force the government to allow import of cement from neighboring India and China which is much cheaper as compared to the cement available in the local market.

Although almost the entire cement units operating in Pakistan have shifted from costly fuel oil to coal, yet the cement price was on the higher side on the lame excuse of higher international oil prices.

Despite a strong protest lodged by the construction industry over what they called exorbitant cement prices stalling growth in the housing sector, the strong cement cartel was not prepared to pay heed to the hue and cry raised by the end users.

It is, however, learnt that the government was actively considering withdrawal of the incentive of exemption of central excise duty given to the cement sector some two years back in the forthcoming federal budget in June this year.

Besides the house financing offered by the financial sector, the development activity carried out by the local government at a massive scale was the major factor for pushing up the demand for the cement in Pakistan. It is for the first time that the development funds allocated by the federal government construction of roads, highways, bridges and other public development projects being utilized to a great extent by the city governments in their respective areas which of coursed helped boosting the demand.

On the other hand, the government was planning to construct high dams including the controversial Kalabagh and Bhasha dams. The construction of these dams means that a large production of the units operating in Northern Zone of the country would be consumed by these huge water reservoirs which will be another factor and should be a boon for the cement sector. Despite increase in demand, and profitability, the sector has yet to make its presence felt in the capital market of the country.

After showing a slowdown during the past few months, cement sales during April 2005 depict a considerable leap with local dispatches soaring by 27% YoY to 1.65 million tonnes. According to All Pakistan Cement Manufacturers Association (APCMA) the local cement sales during the first ten months of the prevailing fiscal (July-April 2005) to be at 12.10 million tonnes, which is 19% higher as compared to 10.16 million tonnes during the corresponding period last year. Cement exports were also up by 40% to 0.90 million tonnes.

On the back of tremendous demand growth, the industry's cement dispatches have soared 21% to 13.3 million tonnes. Overall, the higher demand figures have resulted from improved housing and construction activities in the country, economic upturn and increased exports to Afghanistan.

Resultantly, the capacity utilization during FY05 represents a rosy picture of the cement sector. The average utilization levels have shot up nearly 14pps to approximately 90% as against 76% during the previous year.

Looking at the capacity utilization of the leading players it is interesting to note that they are operating almost at 100 percent capacity utilization which gives an idea about this vibrant sector of the economy.

During first ten months of 2004-05 ended April 2005, the leading cement units including DG Khan Cement, Lucky Cement and Pioneer Cement's capacity utilization stood at 102%, 105% and 107% respectively.

Similarly, Bestway Cement, Fauji Cement, Kohat Cement and Maple Leaf Cement's operating levels are respectively at 112%, 97%, 96% and 87%. In the South, Attock Cement's utilization level has stood at 94%.


The outlook for cement demand represents an extremely upbeat picture of cement industry. The market experts anticipate overall industry sales growth during FY05 at around 23-24%. According to industry sources, presently the cartel of cement manufacturers, known as Marketing Arrangement, is not in operation.

Housing activities in the country continue at a fast pace, fuelling cement demand. At the same time, exports to Afghanistan will continue to multiply with booming UAE, which is also emerging as a lucrative market for the cement sector.

President Pervez Musharraf during last few months has repeatedly mentioned the need for construction of new dams and water reservoirs and for building national consensus towards it. These prospects bode extremely favorably for domestic demand. Moreover, given that the capacity additions by the cement manufacturers will be gradual, excess supply concerns are mitigated, at least in the intermediary term.

Following are the synopsis of some of performing cement units in Pakistan:




Lucky Cement's financial results reveal that profit after taxation for the nine months ended March 2005 registered a 32% growth to Rs582 million as against Rs442 million previously.

Overall revenues of this unit were up 40% to Rs2.77 billion with local and export sales respectively soaring by 22% and 420%. Gross margins of the company, however, depicted shrinkage to 33.6% on the back of higher coal and furnace oil prices. Financial charges and other charges were respectively higher by 95% and 23%.

Meanwhile this unit is going to enhance output as the higher production was in the pipeline with major expansions to come online soon.

In terms of volumes the sales were up 32% to 1.019 million tonnes as compared to 0.769 million tonnes previously.

The sales in the domestic market were also increased nearly by 14% to 0.818 million tonnes. The cement exports by this unit rocketed to 0.200 million tonnes as against 0.052 million during the corresponding period of last year.

It may be mentioned that Lucky Cement's expansion plans are progressing on a fast track and it is expected that its production facilities at Pezu and Karachi are expected to be completed ahead of time. The production facility at the Pezu plant is partially expected to come online by the end of July 2005 and the remaining facility is scheduled to start production by the end of January 2006.

The Karachi production facility is also expected to come online by March 2006.

The outlook for cement demand represents a glowing future for the overall cement industry. Presently, the demand for cement outstrips its supply evident by the fact that the industry is operating at full capacity with the utilization levels of leading players being well in excess of 100%.


DG Khan Cement yet another front line player in the cement sector declared its earnings 58% higher compared to the earnings during the corresponding period of last year. The sales are to be fuelled on the back of higher capacity utilization. Margins are to be supported on firming up of cement prices offsetting the impact of hike in input costs (mainly coal).

Recently cement prices were raised by approximately. Rs10/bag to around Rs250/bag indicating the manufacturers' ability to pass on cost increases to the consumers. The financial charges are estimated to show 19% increase ensuing from the firming up of interest rates.

DG Khan Cement's earnings for the six months ended December 2004 surged by a significant 59% to Rs644 million as against Rs405 million during the corresponding period of last year. Profitability improved on the back of the combined contribution of higher sales and capacity utilization and firm cement margins.

According to All Pakistan Cement Manufacturers Association (APCMA), cement sales during the first nine months of FY05 (July-March 2005) depicted a 20% increase to 11.73 million tonnes as against 9.79 million tonnes during the corresponding period of last year.

DG Khan Cement is implementing an optimization/de-bottlenecking plan, which is to enhance total production capacity to 6700 tonnes per day as against 5500 tonnes per day presently. The company has stated that the optimization of Unit-1 has been completed and the plant has resumed production. The optimization of Unit-2 is in progress and is scheduled to be completed during early FY06.

DG Khan Cement is also setting up a new cement production line at Khairpur, District Chakwal. This plant is to have a production capacity of 7,000 tonnes of cement per day and is scheduled to come online during 2008. The new plant will enable the company to capture the market of the Northern Punjab and NWFP provinces and make export to Afghanistan from the northern borders more convenient. DG Khan Cement has stated that the new plant will offer greater fuel and energy efficiency and provide increased operational flexibility.


Pioneer Cement is one of the leading players amongst the active corporate leaders. The company's earnings during first half of the financial year were up 13% to Rs161 million as against Rs142 million during the corresponding period of last year. Sales soared by 45% to Rs870 million as against Rs600 million earlier. This unit has also injected impressive investment in its expansionary project which is reportedly in full swing and its production was expected to come online soon.

Pioneer Cement's sales soared by 45% during first half of the year which was mainly contributed mainly exports. Gross margins marginally shrank to 31.7%. Nonetheless, gross profits were 42% to Rs276 million as against Rs194 million during the corresponding period of last year.

The financial charges nearly halved to Rs66 million resulting from balance sheet restructuring. Earnings before taxation during first half of the financial marked a 390% increment. It may be recalled that last year the bottom-line was boosted on the back of deferred tax adjustment. The higher base effect limited the improvement in the July-Dec 2004 after-tax earnings to 13%.

The expansion plan of the company is to enhance the company's production capacity by 4,000 tonnes per day. Initially Pioneer Cement was planning to augment the capacity of the existing plant. Nonetheless, the company has opted for the new unit in order to avoid longer production stoppages. The new plant is scheduled to come online in October 2005.