Pakistan Cement Industry

Compiled by Mirza Rohail B http//economicpakistan. wordpress. com/2008/02/12/ cementumumumum-industry/ History & gate Growth of cement industry is rightly considered a barometer for economic activity. In 1947, Pakistan had inherited 4 cement plants with a total electrical condenser of 0. 5 cardinal dozens. Some expansion took place in 1956-66 but could not keep pace with the economic training and the country had to resort to implications of cement in 1976-77 and continued to do so till 1994-95. The industry was privatized in 1990 which led to setting up of new plants.Although an oligopoly grocery store, there exists fierce competition between members of the cartel today. The industry comprises of 29 firms (19 units in the north and 10 units in the south), with the inst all(prenominal)ed exertion competency of 44. 09 gazillion hemorrhoid. The north with installed production contentedness of 35. 18 gazillion lashings (80 pct) while the south with installed production m essage of 8. 89 million lots (20 percent), compete for the domestic market of all everywhere 19 million tons. There argon tetrad foreign companies, lead armed forces companies and 16 private companies listed in the stock exchanges.The industry is change integrity into two broad pieces, the northern region and the southern region. The northern region has around 80 percent sh be in total cement dispatches while the units based in the southern region contributes 20 percent to the annual cement sales. cementum industry is indeed a exceedingly important segment of industrial sector that plays a pivotal single-valued function in the socio-economic outgrowth. Since cement is a specialized product, requiring sophisticated infrastructure and production location. Mostly of the cement industries in Pakistan atomic number 18 located near/ deep down mountainous regions that be rich in clay, iron and mineral capacity.cementum industries in Pakistan are currently direct at their maxim um capacity due to the boom in commercial and industrial construction inside Pakistan. The cement sector is contributing above Rs 30 gazillion to the topic exchequer in the form of valuatees. cementum industry is to a fault parcel the nation by providing job opportunities and presently more than 150,000 persons are employ directly or indirectly by the industry. The industry had exported 7. 716 million tons cement during the year 2007-08 and had earned $450 million, while is expected to export 11. 0 million tons of cement during 2008-09 and earn approximately $700 million. Fiscal functioning 2008-09 Business Recorder reported that Pakistans cement exports witnessed a rock-loving harvest of 65%, to everywhere 6 million tons during 7 months of the current pecuniary year mainly due to rise in international ask. The exports may reach to 11 million triiodothyronines and earn approx $ 700 million during 2008-09. The statistics of All Pakistan cementum Manufacturers affiliation also showed that cement exports had mounted to over 6 million tons in 7 months as compared to 3. 2 million tons of same arrest of last fiscal year, depiction an increase of 2. 38 million tons. Cement exports during January 2009 went up by 30% to 0. 81 million tons as compared to 0. 623 million tons in January 2008. However, slow construction activities in the country during the period badly hard-pressed domestic sale of cement, which depicted decline of 15%, to 10. 77 million tons as compared to 12. 59 million tons of last fiscal year. On MoM basis, local dispatches of cement during January 2009 showed a decline of 8%, to 1. 51 million tons from 1. 65 million tons of January 2008.boilersuit dispatches, including export and local sales, reached 16. 77 million tons during July to January of 2008-09 as against 16. 20 million tons of last fiscal year, depicting an increase of 3%. By September 2009, after witnessing substantial growth in all three quarters of fiscal year (FY) 2008-09 , cement sector cogitate the fourth quarter with a handsome growth of 1,492 percent on each year basis, All Pakistan Cement Manufacturers Associations report revealed on 29th September 2009. Higher store legal injurys (up 59 percent) and high rupee based export sales amid rupee depreciation (20 percent) drove dismiss income up north.However, this growth is magnified, as FY2007-08 was an abnormally low profit period for the sector. Moreover, the performance is skewed towards large players with export potential as profitable companies in both years stick on increase of just 109 percent, state analyst at JS Research Atif Zafar. He said that cumulative peremptoryness of companies in FY09 stood at Rs 6. 2 billion or $78. 2 million as compared to Rs 386 million or $6. 2 million depicting a massive growth of 1,492 percent. Companies with profits in both the years posted 109 percent earnings improvement.Though total dispatches were down 2 percent, net sales grew by 55 percent to Rs 101. 4 billion or $1. 3 billion on the back of high net retention prices (up 59 percent) and improved export based revenues. Cost of sales/tonne also blush by 33 percent on yearly basis amid higher realised coal prices and inflationary pressures, the analyst maintained. exertion force In Pakistan, there are 29 cement manufacturers that are playing a vital role in the building up the countrys economy and contribution towards growth and prosperity.After 2002-3, more or less of the cement manufacturers expanded their operations, and increased production. This sector has invested about $1. 5 billion in capacity expansion over the last six years. The operating capacity of cement in 1991 was 7 million tons, which increased to make up 18 million tons by 2005-06 and by end of 2007 rose to above 37 million tones, and currently the production cpapacity is 44. 07 million tonnes. Cement production capacity in the north is 35. 18 million tons (80 percent) while in the south it is only 8. 89 million tons (20 percent).The cement manufacturers in 2007-08 added above eight million tons to the capacity and the total production was expected to exceed 45 million tons by the end of 2010. It may result in a summate glut of seven million tons in 2009 and 2010. Actual Cement Production (in million tons) According to Government Board of Investment, 2001-02 9. 83 2002-03 10. 85 2003-04 12. 86 2004-05 16. 09 2005-06 18. 48 2006-07 22. 73 2007-08 26. 75 2008-09 20. 28 Exports & International Markets The cement industry of Pakistan entered the export markets a a few(prenominal) years back, and has established its spirit as a good quality product.Deregulation after memory access of Pakistan to WTO is expected to open the window of competition from cheaper markets. The recent acquisition of Chakwal Cement by an Egyptian giant, Orascom may be a beginning of such an entry in Pakistan by multinationals. New avenues for export of cement are opening up for the indigenous indu stry as Sri Lanka has recently shown take to import 30,000 tons cement from Pakistan every month. If the industry is able to utilize the opportunity offered, it may secure a significant share of Sri Lanka market by supplying 360,000 tons of cement annually.In 2007, cxxx,000 tons cement was exported to India. In 2007, the exports to Afghanistan, UAE and Iraq touched 2. 13 million tons. At present, the economies of major countries are facing recession, but Pakistans cement sector is still maintaining a healthy growth. Cement export to India has already slowed after imposition of craft by Indian authorities. Pricing Another problem faced previous by the Industry was the high tax revenueation. The general sales tax (GST) was 186% higher than India. The impact of this tax and business structure resulted in almost 40% increase in the cost of a cement bag (50 Kg).A bag in India earlier cost Rs. 160 as compared to Rs. 220 in Pakistan. In the budget of 2003-04, a transaction cut of 25 % was permitted to the cement sector with assurance from the cartel to pass on this benefit to the consumers. In 2006, the price of a bag went up to Rs. 430 however in 2007 it has stabilise at Rs. 315 per bag. In mid 2008, cement prices stabilized further at Rs. 220 per bag. The Government has reduced central scratch duty (CED) on cement in the budget for 2007-08 in order to boost construction activity. total industry cost of cement bag/50Kg = Rs. 193Average industry price of cement bag/50Kg = Rs. 235 Domestic Demand Local demand in the country for the year 2008-09 is expected to be around 20 million tons. Domestic demand is expected to grow at 13% Capacity growth rate (CAGR) during next five years. Certain factors will also affect the growth of cement industry as well. These are as follows Strong GDP growth O Higher GDP growth has positive impact on cement demand. O Cement demand growth rate was double the GDP growth rate in last three years. house sector growth O Housing proje cts consume roughly 40% of cement demand.O Low arouse rates, post 9/11 remittances inflow, and real estate boom devour helped housing sector growth. Government Development Expenditures O Government development expenditures count for one third of total cement consumption. O development in PSDP from Rs. 80 bn in 1999 to Rs. 520 bn in 2007. O Infrastructure development in a region triggers private development projects having even positive impact on cement demand. temblor Rehabilitation O Earthquake losses of October 8th are estimated at $ 5. 2bn O reconstruction take in will boost construction material demandO Reconstruction work is expected to generate cement demand of 4mn tons over next 3-4 years Announcement of large Dams O Construction of four large dams will generate demand of 3. 7mn tons. Bhasha Daimer Dam, Munda Dam, Akhori Dam and Neelum Jhelum. Per Capita Cement pulmonary tuberculosis Pakistan currently has a per capita consumption of 131kg of cement, which is comparab le to that for India at 135kg per capita but considerably below the World Average 270kg and the regional average of over 400kg for peers in Asia and over 600kg in the Middle East.Cement demand remained stagnated during 90s owing to lack of development activities. In 1997, per capita consumption was 73 kg in both Pakistan and India. By 2005-06, consumption in India rose to require 115 kg/capita whereas ours rose to 117 kg/capita. A comparison of few countries in 2005 Bangladesh 50 kg/capita Pakistan 117 kg/capita India 115 kg/capita ground forces 375 kg/capita Iran 470 kg/capita Malaysia 530 kg/capita EU 560 kg/capita China 625 kg/capitaUAE 1095 kg/capita Challenges to Cement Industry The cost and exports may be alter due to weakness of the US dollar causing coal, electricity charges and incubus prices, comprising 65 to 70 percent of the cost. The PSDP allocation for 2009 has been cut by Rs 75 billion and feared further cuts would curtail cement demand. Major capacities of countr ies like India and Iran are expected to come online by FY10 and onwards which are likely to transfigure these countries from dependent importers to potential exporters.Moreover, this current rising trend is expected to be short-lived due to higher interest rates and inflationary concerns are likely to make it disadvantageous for investors to enter the construction industry. In growth to this, to control real estate prices the government is considering imposing a tax on it. Major General Rehmat Khan, Chairman of All Pakistan Cement Manufacturers Association (APCMA), told Business Recorder, cement industry is getting Rs 24 per ton as day dutydrawback for export of cement which needs to be revised.In face of todays calculation for duty drawback, which works out to Rs 130 per ton, he proposed that duty drawback be increased to Rs 130 per ton ,instead of Rs 24 per ton. Referring to taxation on cement, he said that cement dispatches are offspring to payment of federal excise duty Rs 900 per ton, general sales tax 16 percent, special excise duty 1 percent, marking compensation 0. 1 percent of ex-factory price, besides provincial duties and taxes. These taxes come to around Rs 96 per bag which is the highest in the world. Cement, it appears, is being treated as a sumptuousness item for the purpose of taxes and duties.He proposed that the government should reduce excise duty by Rs 450 per ton in the forthcoming budget while the be half should be eliminated altogether along with the special excise duty. to a fault this, sales tax should not be charged on excise duty paid value. He also proposed withdrawal of customs duty on Pet Coke and remove it from negative list for import from India because cement industry imports Coal and Pet Coke as burn for production and customs duty on imported coal is vigour while on Pet Coke it is charged 5 percent. (c) frugal PAKISTAN