GROWTH PROSPECTIVE OF CEMENT INDUSTRY

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
May 12 - 18, 2008

Growing cement sector reflects country's progressive development towards economic betterment. Also, it is one of the crucial and accurate barometers to gauge the perspective and prospect underlying in an economy as its growth has a direct correlation to infrastructure advancement and indirect to industrial developments. Increasing local demand of cements, on one hand, means rising construction activities in a country, on the other surge in export orders is too a positive omen for an economy. At either side, Pakistan's cement industry in last eight years has been steadily moving up on to the growth trajectory.

Hovering around mere 9.9 million tons dispatches in fiscal year 2001, this industry pulled up impressively the production level to about 24 million tons in fiscal year 2007. While phenomenal rise in local demands of cement expedited the manufacturing process of the cement plants, foreign-driven demands from mainly mid eastern and African countries gave significant boost to the production. It is projected that demand of Pakistan's cement in gulf countries is to increase manifold in near future.

Rather, revenue earned from exports of cement at present depicted a marvellous jump. While export receipts of cement in July-Mar 2007 were about 74.4 million dollars, they reached to 229.1 million dollars in the corresponding period of this fiscal year. The export opaque performance is fairly noticeable during five year track records. For instance, $1 million cement exports of first month of 2003 skyrocketed to become $23 million in Jan 2008.

Given that installed capacity of 29 plants situated all across the country stands at 35 million tons, there appears a wide scope to raise the current level of production. Apart from this account, cement industry of Pakistan has proved itself a major earner of foreign exchange exclusive of privatization proceeds. In fact, this is safe to presume that it registered incredible percentage growth rate in terms of foreign investments when compared to other sectors in last few years. In July-Mar08, cement industry witnessed 89.5 million dollars inflow of foreign private direct investment in comparison to 13.4 million dollars in the corresponding period of the last fiscal year, exhibiting 567 percent gain.

But, there are still faults detected in the retail price structure of locally-sold cement bags. The price of a bag is said to widely vary within different cities of the country. Despite, Rs. 250 per 50 KG, which was the price value of a bag at starting of the calendar year, was cut short of the earlier one, the price upward or downward revisions apparently went awry during the entire 2007. Consequently, inconsistency in price of cement bag has left an awful scar on the cement industry, disintegrating local market consumption.

In past government had notified tariff incentives over cement imports in order to tackle the uncontrolled domestic price rise of cement. But Industrial players are of the view that import of cement is neither feasible due to accruing costs nor is required because of indigenous surplus production. Few said eerie behaviour of cement retail price is supported by cartelization and has nothing to do with the market interplay. In addition to this, import of cement in the country is too inconsiderable to impact strong market forces that only institutional vigilance can check on. Otherwise, import of cement will merely open another as identical source of income for traders as cash crops do.

It is noteworthy that cement sector is one of the top ten major sales tax spinners for CBR, leading to Rs. 1.8 billion domestic sales tax collection in the first half of 2007-08. During the same period of current fiscal year, import payments disbursed in lieu of construction and mining machinery were nearing 63 million dollars. The figure is presented for the comparative analyses of two different but interrelated sectors. Since mostly petroleum products run these high scale machineries, import bill swells on in proportion to additional running. Cumulatively, 6.8 billion dollars spent on petroleum group in July-Mar08 in contrast to 5.4 billion dollars in the same period of the last fiscal year.

Repatriation of profit or dividend of cement sector reduced to 5.6 million dollars in July-Feb08 from 5.7 million dollars in the corresponding period of the last fiscal year. Notwithstanding Pakistan is ranked on the 19th position in the world's cement producing nations, its share in total production is very low [reportedly 1%]. In spite of steady pattern of growth in the cement sector of the country, improvement in capacity utilization is said to be at odd with the expansion in installed capacity.

Over 40% of local production of cement is undertaken by three major producers. Lucky Cement has the highest share of 21% in national cement production. DG Khan Cement is seconded with 12%, followed by Maple Leaf Cement with 8%. In regional scenario, Pakistan's per capita cement consumption is lowest (128kg) as compared to India (137kg), Iran (520kg), and China (985kg). China, having 50% share in the world's total cement production, occupied a leading role after India, USA, Japan, Russia, and Korea.

The upward trend in cement demand is likely to continue for years to come as UAE finds it cost effective to import cement from Pakistan. Besides, housing sector, infrastructure development, dams, and water development programs will increase the local consumption of cement. To meet the impending supply-demand shortfall, capacity utilization of cement plants will have to be enhanced. India while not having more than 6.5% share in the total global cement production outpaced major international cement producers recently due to optimal capacity utilization. Pakistan's cement industry has long way to go to get international acclamation but growth in external and internal trades and interest of foreign investors in cement sector have potential for bearing results. Most importantly, rationalization of local price can impede any government future plan of reliance on imports that would never be in the advantage of local industry.