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1332569363research Report On Cement Sector of BD-Initiation, April 05,2011 PDF
1332569363research Report On Cement Sector of BD-Initiation, April 05,2011 PDF
INVESTMENT ANALYST
znahar@idlc.com
ABSTRACT
Bangladesh cement industry is the 40th largest market in the world. Currently capacity of the industry
is about 20 mn tonnes (MT). Top 13 players are alone controlling over 78% of the total industry
capacity. However, the balance capacity still remains quite fragmented.
Per capita consumption remains poor when compared with the world average; only 65 kg (FY2009)
while our neighboring countries, India and Pakistan, have per capita consumption of 135kg and
130kg respectively. This underlines tremendous scope for growth in the Bangladesh cement industry
in the long term.
Cement, being a bulk commodity, is a freight intensive industry and transporting it over long distances
can prove to be uneconomical. For that reason, industry is regional in nature. Its also seasonal in
nature, during Monsoon industry suffers from low demand. Four major costs are associated with the
production of cement as provided:
Cost elements
Power and fuel costs
Raw material costs
Transportation costs
Other expenses
% of cost of sales
10%
75%
5%
10%
The pricing of cement of various players in the industry are very close to one another. The factories
which would be using captive power (which is cheaper and more reliable than grid power) and
backed by uninterrupted clinker supply at competitive price, are likely to be more cost efficient to
emerge as the market leader. Currently, the standard price of one bag of cement produced by the
multinational cement companies ranges within BDT 370 to BDT 390 per bag. On the other hand,
price of one bag of cement produced by the local companies ranges within the price bracket of BDT
340 to BDT 365.
The common technology which is widely used in our industry from the year 2003 is Portland
Composite Cement (PCC) which is made following European Standard Methods (ESM). Earlier,
Ordinary Portland Cement (OPC) had been used which was made following the American Standard
Method (ASM). PCC gives equal strength and durability like OPC. The basic difference between them
is in the manufacturing technology. Only 65%-80% of clinker is required to produce PCC while 95%
of clinker is required to produce OPC. So, worldwide PCC has become popular which requires less
clinker.
Currently, Heidelberg, Holcim and Lafarge are the leaders among multinational cement
manufacturers and Shah and Meghna are the leading domestic manufacturers. Shah cement is the
market leader with close to 14.20% of the market share, followed by Heidelberg with about 9.30% of
the market share. During the 2010, many small local manufacturers like Premier, Seven Circle,
Crown, Fresh and King cement increased their sales drastically riding on their benefits of economies
of scale, backward linkage and aggressive marketing effort.
In Bangladesh, cement consumers are categorized as follows:
1. Individual home makers (25%)
2. Real estate developers (35%)
3. Govt. organizations, i.e., LGED, RHW etc. (40%)
Page 2 of 23
90
80
70
60
45
48
52
50
55
61
59
63
65
50
30
40
20
30
20
10
0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Cement consumption has steadiliy been rising. It is expected that cement companies will enjoy a
good growth of margin over the next 3 years. Becasuse, in next couple of years when large
capacities are expected to come on-stream, pass through of input cost will be easier and clinker
(main raw material of cement) price is expected to remain stable at $53-$58.
Currently, multinational cement companies are facing intensive competition with local companies.
Local manufacturers have been pursuing more innovative and agressive business strategy compared
to multinationals. Local manufacturers seek to seize large market by reaching mass people through
economies of scale while multinationals cater the needs of specific group of customers by charging
high price through superior brand value and quality. In addition, another basic trend in cement
industry is smaller companies are shutting down and the bigger companies are becoming bigger.
Leading cement manufacturers are now going for expansion. It is expected that if the ongoing
expansion plans complete within FY2011, the total production capacity of the industry will rise by
61%. Cement industry expects the consumption to rise by 25% (it will be much higher if Government
projects come on stream). Though it seems that the industry will run overcapacity but as mentioned
earlier, industry is dependent on only 13 companies production. So it reveals that the cement
industry will fall short of supply if the demand increases in line with the big infrastructural projects of
Government as expected in future and this symbolizes the huge growth potential of our cement
industry.
Industry Demand & Production
Year
2005
2006
2007
2008
2009
2010
Consumption
(m n M T )
7 .6 0
8 .4 0
8 .2 0
8 .5 4
1 0 .5 7
1 3 .9 3
Growth rate %
18.50%
10.53%
-2 . 3 8 %
4 .1 0 %
23.82%
31.80%
Ca p a c i t y ( m n
M T)
1 1 .1 7
1 1 .9 1
1 2 .2 0
1 4 .4 4
1 7 .3 5
1 9 .9 5
Growth rate
%
5 .2 0 %
6 .6 3 %
2 .4 8 %
18.38%
20.14%
14.96%
Considering the Life cycle of the industry, currently cement industry of Bangladesh is in the growth
stage. Sales of cement are increasing due to growing demand for cement in both the local and
foreign markets. The industry realized about 30% and 21% growth in 2009 and 2010 respectively
Page 3 of 23
after suppressed demand from previous years. Industry expected demand growth is 20%-25% for the
next three years based on the assumptions below.
1. Government would be able to materialize its important ADP.
2. According to the UN Population Fund (UNFPA) report 2010, 28% people of our country live in
urban areas where the population growth is 3.2 per thousand. Urbanization and demand for
accommodation are increasing day by day. Thus it is expected that the real sector will grow
steadily with the household users increasing cement consumption pattern.
3. Private sector may get interested to invest in real estate for getting tax advantages of their
undisclosed funds
4. Good number of large infrastructure construction projects (Padma Bridge, Flyovers, highways)
are on the pipeline.
5. There is no Substitute for Cement. Steel can be used in construction but in limited extent due to
its high cost.
On the flip side, some caution has to be maintained due to the current demand- supply gap leading
to over capacity and falling margins and prices. Also, given the close linkages between them, the
effect of a slowdown in real estate growth or hike in interest rates globally or price increase of
imported raw materials should also be considered.
Page 4 of 23
Page 5 of 23
1.0
PREAMBLE
Gradual substitution of traditional building structures or patterns by modern high-rise ones has
pushed up the use of cement. A faster growth in demand for cement has been observed only since
mid-1980s, especially with implementation of large infrastructure projects, increased pace of
urbanization, construction of apartment buildings and multistoried shopping complexes in urban areas
and a shift in the taste of rural people for modern houses.
After a decade, currently 123 companies are listed as cement manufacturers in the country. Among
them 63 have actual production capacity while 32 are in operation. The current installed capacity of
the industry is 20.0 mn MT. This installed capacity has been calculated under two conditions below:
1. all factories are in operation
2. production is at its peak season
Though the installed capacity is 20.0 mn MT, currently the acutal capacity is about 13.96 mn MT due
to supply constraints for power and clinkers.
13.93
350
97,510
1.35
Source: BCMA & IDLC research
Page 6 of 23
20
70%
13.96
13.93
84.5 Kg
123
63
32
8
260
10%
8%
32%
25% / year
78%
Source: BCMA & IDLC research
19.95
17.35
14.44
15.00
11.91
11.17
7.60
10.00
12.20
13.93
10.57
8.40
8.20
8.54
2006
2007
2008
5.00
2005
2009
2010
Industry structure
Multinationals ,
27%
Local
Manufacturers,
73%
Page 7 of 23
Peak Season
Dull/off Season
(depends on
monsoon)
June to September
Bangladesh cement industry is known for its seasonality which can be as high as 50%. Cement
demand declines during the monsoons due to a slowdown in construction activities. On the other
hand, though the yearly capacity of the industry is saturated with overcapacity, market demand gets
matched or cross the effective capacity during the first 5 to 6 months of the year.
In addition, the cement industry, like most capital-intensive commodity industries, is cyclical in nature
with respect to supply. Given the high gestation period of 24-30 months, there is a time lag between
capacity build-up and cement demand. Cement demand is closely linked to the growth of the
construction sector. Hence, when the construction sector is strong, demand increases. As a result,
the profitability rises, leading to capacity additions by existing players and the entry of new players.
However, since it takes 2 -2.5 years to build a cement plant, it is likely that before completion,
demand could decrease or stagnate, or the capacity additions could exceed demand. This can lead
to a fall in cement prices, and the industry could face a downturn, leading to reducing operating rates
or shutting down capacities.
15.50%
1.50%
7.50%
Dhaka
Page 8 of 23
Mongla
12.00%
Chittagong
Sylhet
Rajshahi
Key points
Supply
Demand
Housing sector acts as the principal growth driver for cement. However,
recently industrial and infrastructure sectors have also emerged as
demand drivers.
Barriers to entry
High capital costs and long gestation periods. Access to cheap source
of clinker supplier also acts as a significant entry barrier.
Bargaining power of
suppliers
Bargaining power of
customers
End users of the product get benefited if they are near to the distribution
plant of the company. But when their positioning is at distance from the
distribution plant, companies used to charge premium. Moreover,
brands used to charge premium on account of better quality perception
also.
Competition
% of cost of sales
10%
75%
5%
10%
Source: IDLC Research
Page 9 of 23
Clinker
Gypsum and Fly ash
Thailand, Indonesia, Malaysia, China,
Philippines and India
Source: IDLC research
$ 53.00
BDT 350 or $5 /ton
$ 58.00
BDT 840 or $12 /ton
$ 65.00
Source: IDLC Research
Apart from clinker, other raw materials used by the cement industry are fly ash, ironslag and gypsum.
3. Transportation cost
The weight/ price ratio of cement effects transportation cost significantly. Location of a cement plant
and the cost to transport the cement to its distribution terminals, determines the plants competitive
position and price it may charge.
Page 10 of 23
Although in a minimal percentage but rising loading restriction imposed on vehicles crossing over the
Jamuna Bridge and priority movement of vehicles carrying food grain are also causing setbacks for
the industry by increasing transportation cost.
4. Other expenses
Other expenses include employee costs, administration expenses, others. These account for 5-10%
of the cost of sales.
Page 11 of 23
Ratio
65-80%
Slag
Fly Ash
21-35%
Limestone
Gypsum
0-5%
Ratio
95-100%
0-5%
Source: www.cemweek.com
5.2 Technology
The manufacture of cement is a two-phase process. Firstly, Clinker is produced. Most common
methodology of producing clinker is to mix up calcareous minerals such as chalk, limestone
containing silica and alumina and heat upto 1450 degree C. After cooling it, clinker is formed.
Secondly, the clinker is ground with calcium sulphates and with industrial processes wastes such as
blast furnace slag, limestone and fly ash to produce Portland cement.
Two basic types of clinker production processes exist, depending on the way the raw materials are
prepared before entering the kiln system:
In the wet method, water is added to form wet thick slurry and dry process is based on drying the bulk
materials to form a dry powdered meal. The choice of process depends on moisture content of the
available raw material. When wet raw materials (moisture content over 20%) are available, the wet
process can be preferred. However, in Europe, todays new cement plants are all based on the dry
Page 12 of 23
process as the wet process requires approximately 56% to 66% more energy. For dry processes,
current state-of-the-art technologies are kiln systems with multistage cyclone preheaters and
precalciners.
Each step in manufacture of portland cement is checked by frequent chemical and physical tests in
plant laboratories. The finished product is also analyzed and tested to ensure that it complies with all
specifications.
Standardization-Bangladesh is maintaining
Standardization
Main constituents
Bangladesh has adopted EN197- 1:2000 as Bangladesh Standard, titled BDS EN 197-1:2003. Under
this Standard there are 27 products in the family of common cements, which are grouped into five
main cement types as follows:
Source: www.cembureau.be
While clinker is the main component in all types of cements, the kind and the amount of the other
constituents determine the type of cement. For example, Portland cement consists of 95% clinker,
whereas Portland composite cement contains of only 65% clinker. All cement types also contain up to
5% of calcium sulphates. In our country recently, the availability of PCC is 95% against 5% of OPC.
Page 13 of 23
14.2%
9.3%
7.4%
6.9%
6.7%
6.4%
6.1%
4.9%
4.0%
3.7%
3.0%
2.9%
2.8%
78.29%
Source: BCMA
9.31%
6.67%
6.45%
2.78%
1.64%
27%
Source: BCMA
Page 14 of 23
Market/
Area
1
2
Sylhet Area
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Dhaka Area
1
2
3
4
5
6
7
8
Chittagong
Area
1
2
3
4
5
1
Mongla Area
Rajshahi
Area
Name Of Cement
Company
Lafarge Surma Cement Ltd.
Chattak Cement
Total
Scan Cement
Shah cement
MI Cement (Crown)
Premier Cement
Holcim BD Ltd.
Seven Circle BD Ltd.
Unique Cement (Fresh)
Cemex Cement
Anwar Cement
MTC Cement (Tiger)
Eastern Cement (Shat Ghora)
Mir Cement
Akij Cement
Metro Cement
Emirates Cement
Total
Scan Cement (Ruby)
Aramit Cement
Dimond Cement
Mostafa Hakim
Royal Cement
NGS Cement
S. Alam
Confidence
Total
Meghna Cement (MCML-King)
Mongla Cement (SKS)Elephant
Dubai Bangla Cement (5 Ring)
Nowapara Cement
Olympic Cement (Anchor)
Total
Aman Cement
Total
Total
Yearly Total
Consumption
(MT)
Average
consumption/year
(MT)
Market
Share
917,685.74
112,538.30
1,030,224.04
785,538.00
1,948,189.00
673,055.80
547,020.00
887,636.00
953,254.62
844,563.44
382,125.00
192,900.00
385,310.95
138,335.00
141,350.00
502,583.65
136,435.00
225,887.00
8,744,183.46
496,109.00
103,630.00
209,800.00
53,950.00
417,790.00
87,530.00
54,160.00
230,290.00
1,653,259.00
1,021,917.30
76,473.81
9,378.19
85,852.00
65,461.50
162,349.08
56,087.98
45,585.00
73,969.67
79,437.89
70,380.29
31,843.75
16,075.00
32,109.25
11,527.92
11,779.17
41,881.97
11,369.58
18,823.92
728,681.96
41,342.42
8,635.83
17,483.33
4,495.83
34,815.83
7,294.17
4,513.33
19,190.83
137,771.58
85,159.78
6.7%
0.8%
7.5%
5.7%
14.2%
4.9%
4.0%
6.4%
6.9%
6.1%
2.8%
1.4%
2.8%
1.0%
1.0%
3.7%
1.0%
1.6%
63.5%
3.6%
0.8%
1.5%
0.4%
3.0%
0.6%
0.4%
1.7%
12.0%
7.4%
397,280.00
33,106.67
2.9%
246,730.00
158,738.60
311,540.00
2,136,205.90
20,560.83
13,228.22
25,961.67
178,017.16
1.8%
1.2%
2.3%
15.5%
203,625.00
16,968.75
1.5%
203,625.00
13,767,497.40
16,968.75
1,376,749.74
1.5%
100%
Page 15 of 23
Sl.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
Running industry
Shah Cement
Meghna Cement Mills Ltd.
Akij Cement Ltd.
Heidelberg (Scan)
Lafage Cement
Premier Cement
Seven Circle cement Ltd.
Heidelberg (Rubi)
Holcim Cement (BD) ltd.
(Dhaka)
Holcim Cement (BD) ltd.
(Mongla)
M.I Cement Factory (300 days)
Unique Cement
Ryal Cement
Mongla Cement Factory
Emirates
Diamond Cement Factory
M.T.C Cement Ltd.
Aramit Cement Ltd.
Confidence Cement Ltd.
S.Alam Cement Mills Ltd.
Cemex (BD) Ltd.
Olympic Cement
Anwar cement Ltd.
N.G.Saha Cement Mills Ltd.
Chatak Cement Ltd.
Aman Cement Factory Ltd.
Mir Cement
Metropoliatan Cement Ltd.
Eastern Cement Ltd.
Dubai (BD) Cement Mills Ltd.
Alhaj Mustafa Hakim Cement
Noapara Cement Mills Ltd.
Total
Present
capacity
(mn
MT/year)
Probable
capacity
expansion (mn
MT/year)
Total capacity
after expansion
(mn MT/year)
Probable
completion
year
2.25
1.44
1.26
1.20
1.20
1.20
1.02
0.90
1.86
4.80
0.60
1.54
0.75
4.11
6.24
Jan-11
Jun-11
1.80
2.56
1.65
Sep-10
Jun-11
End of 2011
0.90
1.98
2.88
Not finalized
0.84
0.80
0.72
0.72
0.60
0.60
0.36
0.51
0.50
0.40
0.35
0.25
0.21
0.18
0.18
0.18
0.18
0.18
0.18
0.18
0.18
0.10
1.65
1.26
0.81
0.60
0.47
-
2.49
End 2011
1.62
1.32
1.10
End 2011
Not finalized
2011
0.65
Dec-11
20
16
36
0.18
Supply-Demand Ratio
2,010
2012
in mn MT
Growth rate
19.95
13.96
13.93
32.06
22.44
17.41
61%
61%
25%
100%
129%
Source: IDLC Research
Page 16 of 23
25%
35%
Government projects
40%
Source: IDLC Research
GR %
11%
-2%
4%
24%
32%
5.96%
6.63%
6.43%
6.19%
5.74%
5.80%
7.60
8.40
8.20
8.54
10.57
13.93
83%
Source: IDLC Research
90
80
70
60
45
48
50
52
55
59
61
63
65
50
30
40
30
20
20
10
0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Page 17 of 23
Shah Cement
Holcim Bangladesh Limited
Seven Circle
Unique Cement
MI Cement
Confidence Cement
Premier Cement
Aramit
All these companies are exporting in very low quantity to the neighboring countries (India and
Myanmar) which are easily accessible through water transportation such as ships and mother
vessels. Transportation cost is major concern to export cement. Thus exporting this product to
countries which are reachable through connecting water bodies is much more feasible in terms of
cost and accessibility.
High duty charge is one of the main stumbling-block of cement export. Cement manufacturers in our
country produce cement by importing clinker from China and Indonesia (mainly) at a high rate of
shipping cost and duties which make the present cost structure impracticable to tap the export
potentials for cement. If the government make the duty structure more industry-friendly by exempting
some duties on exportable cement and granting cash incentives, cement exporting to Sri
Lanka,Nepal,Bhutan and the Middle Eastern (ME) countries will be feasible in future.
BDT 350/ton
12% on invoice value
25% on invoice value
12% on invoice value
12% on invoice value
Source: BCMA
Page 18 of 23
Page 19 of 23
Industry expected demand growth is 20%-25% for the next three years based on the assumptions
below.
1. Government would be able to materialize its important ADP of building big infrastructure
projects.
2. According to the UN Population Fund (UNFPA) report 2010, 28% people of our country live in
urban areas where the population growth is 3.2 per thousand. Urbanization and demand for
accommodation is increasing day by day. Thus it is expected that the real sector will grow
steadily with the household users increasing cement consumption pattern.
Population Growth rate of Bangladesh
Total Number of population
Year
(mn)
2000
140.77
2001
143.29
2002
145.80
2003
148.28
2004
150.73
2005
153.12
2006
155.46
2007
157.75
2008
160.00
2009
162.22
2010 (est.)
164.40
2050
176.53
(forecasted)
Page 20 of 23
3. Private sector may get interested to invest in real estate for getting tax advantages of their
undeclared funds
4. Good number of large infrastructure construction projects (Padma Bridge, Flyovers,
highways) are on the pipeline.
5. There is no Substitute for Cement. Steel can be used in construction but in limited extent
due to its high cost.
On the flip side, some caution has to be maintained due to the current demand- supply gap leading
to over capacity and falling margins and prices. Also, given the close linkages between them, the
effect of a slowdown in real estate growth or hike in interest rates globally or price increase of
imported raw materials should also be considered.
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
The largest global players are Lafarge (France), Holcim (Switzerland) and Cemex (USA). In terms of
cement production, Bangladesh ranks about 40th in the world.
According to Global Industry Analysts, Inc., global demand for cement is forecasted to rise 4.1% per
year and reach to 3.5 billion metric tons in 2013. Gains will be fueled by rising investments in
Page 21 of 23
infrastructure among the developing countries of the world, driven by economic growth and
increasing per capita income levels.
1,400
India
260
Japan
84
USA
68
Russia
53
1,200
China
1,000
India
135
Pakistan
130
Bangladesh
65
Asian group
400
Middle east
600
World average
270
CAGR %
FY 2007
2,568
9.9
FY 2008
2,763
7.6
FY 2009
2,857
3.4
Page 22 of 23
14.0
CONCLUDING REMARK
The cement industry is likely to maintain its current growth momentum and continue growing at
around 20% to 25% in the medium to long term. Government initiatives in the infrastructure sector
and the housing sector are likely to be the main growth drivers.
Our cement consumption per year was only 65kg in FY2009 whereas, in India its 135 kg and in
Pakistan its 130kg. So there is a lot of opportunity to grow in this industry.
If the import duty structure of various cement products, e.g. finished cement, semi-finished cement
and basic raw materials for cement (25%, 12% and 7% respectively) continues i.e. import duties is on
favor of the local manufacturers and the construction sector remains booming with smooth power
supply than nothing to be surprised that cement industry will be the most evolving industry in the
next three to five years.
The importance of the housing sector in cement demand can be gauged from the fact that it consumes
almost 60%-65% of the country's cement. If housing sector growth wanes, it would impact the growth
in consumption of cement, leading to demand supply mismatch.
Threats
Construction sector dwindling
Energy price and supply
International pricing of raw materials
Growing usage of steel materials for construction
Disclaimer: This Document has been prepared and issued by IDLC on the basis of the public information available in
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taken to ensure that the facts & information stated in the Document are accurate as on the date mentioned herein.
Neither IDLC nor any of its director, shareholder, member of the management or employee represents or warrants
expressly or impliedly that the information or data of the sources used in the Document are genuine, accurate,
complete, authentic and correct. Moreover none of the director, shareholder, member of the management or employee
in any way be responsible about the genuineness, accuracy, completeness, authenticity and correctness of the
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If any person takes any action relying on this Document, shall be responsible solely by
himself/herself/themselves for the consequences thereof and any claim or demand for such consequences shall be
rejected by IDLC or by any court of law.
Page 23 of 23