Analysis of Pakistani Industries

Cement Industry Of Pakistan

 Importance
• Cement indicates urbanization.

• The demand for cement is a good indicator of the economic

development of a country.

• An increase in productivity increases GDP, which improves

the standard of living and this results in improved
infrastructure.
 
 
• Raw materials are in abundant quantity in
Pakistan and can last for approximately 100
years.
 
The technology for operating the cement plant
does not require highly technical labor hence it
suits the skill level of our labor
 
• Cement industry employs approximately
90000 employees.
 
• It is a big source of government revenue as it
is subjected to highest tax rates.
 
 Contribution To National Economy

Direct and indirect Rs 17.50 billion

taxes
Value of fixed assets Rs 66.21 billion
deployed
Loans from financial Rs 41.53 billion
institutions
Shareholders equity Rs 26.67 billion

Employment (direct 90000 approximately

and indirect)
 % Share In World’s Production
COUNTRY % share in world’s
production
China 37.2 %
India 5.8 %
Indonesia 1.86 %
Turkey 1.80 %
Iran 1.63 %
Thailand 1.63 %
Pakistan 0.66 %
 History

  Pakistan had only 5 plants of cement out of which

4 were in West Pakistan with a total capacity of
0.5 million tones per annum, with a demand of 1
million tones per annum.

• Under the industrialization process, the

government put up 2 cement plants. Zeal Pak with
capacity of 240,000 tones per annum, and Maple
Leaf with a capacity of 100,000 tones per annum
• The demand for industrialization was not met in
1960s, therefore the capacity was encouraged
and private sector was allowed to enter to an
extent that there was a surplus and cement was
exported.
 
• In 1970, after the nationalization under Bhutto,
the private sector moved out because setting up
a cement plant required 3 to 4 billion for 1
million tones per annum capacity, thus supply
decreased and we started importing
• Under Zia’s regime in 1980, the private sector
was encouraged which led to an excess supply
in 1980-2000.

• The government restricted capacity

utilization to 60% and fixed prices as a result
of excess supply.
 
 Products
The world has 20 different types of cement
but in Pakistan demand exists for the
following four types

 Ordinary Portland cement

 Slag cement
 White cement
 Sulphate resistant cement
 Portland cement
• Portland cement made by finely pulverizing
the clinker produced by calcining to incipient
fusion a mixture of argillaceous and calcareous
materials.
• Portland cement is the fine gray powder that is
an active ingredient in concrete.
 History
• First cements was produced by early Greeks
and
Romans from volcanic ash mixed with
slaked lime
• This art was lost during the Middle Ages
• Portland cement developed in England by
bricklayer Joseph Aspdin in early 1800’s
• It Called “Portland” because concrete made with
resembled natural stone from the Isle of Portland

• First rotary kiln designed to produce Portland

cement patented in 1885 by Frederick Ransome

• First economical U.S. kilns developed by Atlas

•Cement Company in 1895

•Thomas A. Edison first developed long kilns

(150 feet compared to 60 to 80 feet)
 Portland cement
• limestone+ shale \clay +heat=clinker
• Material temperatures exceed 2700 degrees
Fahrenheit
• Pulverized clinker+ gypsum= Portland cement
• Cement powder is so fine that one pound
contains 150 billion grains
Basic chemical components of Portland
cement
-Calcium
-Silicon
-Aluminum
-iron
Typical raw materials required
Lime stone
Sand
Shale clay
Iron ore
 Calcareous • Argillaceous
component components
• Lime stone • Clay
• Marly lime stone • Shale
• Chalk • Calcareous marl
• Coral lime stone • Marl
• Marble • Marly clay
• Lime sand • Tuff, ash
• Shell deposits • Phyllite, slate
• Shell sludge • glass
 Cement Process
• Wet process easiest to control chemistry & better for
moist raw materials

• Wet process high fuel requirements - fuel needed to

evaporate 30+% slurry water

• Dry process kilns less fuel requirements

• Preheater/precalciners further enhance fuel

efficiency & allow for high production rates
• There are three processes of cement
manufacturing.

1.Wet process -The intermediate product is

clinker in wet process and it is fed in slushy
form in the kiln. For heating it a high
temperature is required. In wet process
water requirement is high and also
disposing this water is difficult
Concrete owes its strength and
durability to one essential
ingredient -Portland Cement
2.Semi process: Semi wet requires a lot of
maintenance during the process that is why it
is not extensively used in Pakistan

3. Dry process: In dry process it is placed in

powdered form and the use of energy is low.
85% of cement unit of Pakistan use the dry
process.
 The Cement Production Process
• The three broad processes of cement
production are
1. Raw milling – the preparation of kiln feed
2. Calcining and burning-the conversion
process that takes place within the cemnt
kiln
3. Finish milling- the grinding of clinker to
produce cement.
 Empirical research
•Attock Cement
•Dewan Cement Ltd
•Dewan Hattar Cement Ltd
•Javedan Cement
•Al-Abbas
•Dadabhoy
•Thatta Cement
•Galadari Cement
 Factor conditions
•Raw materials
•Machinery
•Labor
•Research and development
•Packaging
•Infrastructure
•Energy sources
 Raw materials
Main constituents of cement include:
•Lime
•Alumina
•Iron
•Magnesia
These constituents are obtained from
following raw materials:
•Lime stone
•Clay
•Overburden
•Shale
•Gypsum
•Iron ore
•Bauxite
•Slag

•All the raw materials are found in abundance

in Pakistan
The mining costs for these deposits come to only
about Rs. 100 per tonne or approximately 6% of
total manufacturing cost.

Gray cement manufacture consists of about 73%

limestone and 25% clay.

For the production of sulphate resistant cement

sand and iron ore are also used.
•The amount of gypsum that is added to the
clinker may be taken at 4%.

• For the production of slag cement, blast furnace

slag is also used
 Machinery
•The cement industry is a capital-intensive
industry
•Most of the machinery used is imported.
•There is a heavy reliance on the engineering
sector of the economy.
•There is no up gradation of machinery.
•Only repair and maintenance is done.
•Most of the companies have a foreign
collaboration with LVT; a Hong Kong based
indenting firm.
Countries From Which Machinery is
Imported
West Eur, US,
12.50% 12.50% China
West Eur, China

37.50% 37.50% Western Europe

US, Western
Europe
 Labor
• There are no cement training or vocational
institutes in the country.

• Training is given to the employees mostly on

the job.
•However, some companies have a proper
in-house training.

•Managers should have a masters degree

•Supervisors and technical engineers

should have a diploma or graduation in
related field.

Non-managerial and non-technical labors

require no qualification to intermediate.
 Composition Of Labor Force

17.50%
managerial
technical
20.00%
62.50% non tech/ mng
 Training Programs

15%
28%
none
1 to 2
more thn 4

57%
Research And Development

R&D Department

25%

no
yes

75%
 R&D As a % of Total Cost

12.50%

0-5 %
11-15%

87.50%
 Packaging

• Cement is sold in four ply sacks.

• Cost of paper sacks has gone up by almost

90%.
 Infrastructure
• Transportation
• Utilities
• Seaports
 Transportation
• Cement is sold at the plant.

• Therefore, transportation cost is not incurred.

• Cement plants are located near the quarries.

Transportation cost of cement is
Rs.250/ton for every 100Km.
 Seaports And Highways
•There are only two international sea ports in
Pakistan, namely Karachi and Bin Qasim.

•The sea ports are managed very inefficiently

•There is no cement bulk handling facility at the

ports.
 Energy sources
• Furnace oil
• Coal
• Gas
Furnace oil

Furnace oil consumption per ton of output 85 Kg

Cost of furnace oil per ton of cement Rs.1226.5
produced
Coal

Coal consumed per ton of output 135 Kg

Average price of ready to use coal per ton Rs.530.6
Power cost of coal firing plant per ton of Rs.22
clinker
Total cost of using coal per ton of output Rs.552.6
Saving per ton Rs.674.0
Saving per bag Rs.33.7
 energy sources

coal, gas, fur. Oil

12.50%
12.50% 38% coal, gas
coal,furnace oil
25% gas,furnace oil
12.50%
furnaceoil
 Energy Source

43% In house
57% Wapda / Kesc
Energy cost as a % of total cost

12.50%
31-40%
above 40%
87.50%
 Demand conditions

• Local
• International demand
 Local demand
Seasonal impact

• Autumn season generally witness higher

cement demand

• In winter the demand for cement reduces.

Public projects
• Kalabagh-150,000 million tons per annum
• Bhasha Dam 150,000 million tons per annum
• Gwadar Port 30,000 million tons per annum
• Mass Transit Program 50,000 million tons per
annum
• Canal linings
• Low interest rates by commercial banks

• Foreign remittances

• Earthquake: Approximately 1mn tons of

cement would be required to construct
400,000t of houses for 3 years (or 333k tpa)
Source: KASB Bank Report (Jan 2006)
 Supply
• Nearly all the cement plants have expanded their
operations and increased their production capacity.

• But if there is a slump in demand it would result in

huge losses for the industry

• To meet this challenge the cement manufacturers

are producing to meet the day to day demand.
 Current Capacity

4000
capacity in tpd

3000
2000
1000
0

company name
 Capacity Utilization

28%
91-100 %
81-90 %
57% 71-80 %
15%
 Expansion Plans

100%
80%
60%
40%
20%
0%
yes no
 International demand

• Export to Afghanistan- Demand for cement will

increase to 5 million tons.

• Export to Dubai

• Export to Iraq via. Dubai

• Export to Sri Lanka, Malaysia and Turkey is not

viable due to higher transportation cost.
 EXPORTS

Afghanistan, Iraq,
12.50% 25% Gulf
Afghanistan, Iraq

62.50% Afghanistan only

per capita consumption (Kg)

taiw an
malaysia
thailand
turkey
china
syria
iran
mexico
phillipines
vietnam
turkmenistan
indonesia
srilanka
india
pakistan
 Recent Price Upsurge
• 8th October earthquake.
• Decrease in construction activity due to
unavailability of labor.
• Return of labor force in February.
• Sudden upsurge in construction activity.
• Increase in price to Rs.385/bag.
• However, at present the demand has reduced
to due to the subsidies on import.
 Structure
The cement industry is divided into:
• Northern
• Southern
•There are twenty-four plants operating in the
country.

•Four are in the public sector and the remaining

in the Pvt. Sector.

•Sindh has 7 plants, Punjab has eight, NWFP

has six and Balochistan has one.
•A break up of the production and sales of two
zones reveals that the total sales ratio of the
northern zone to the Southern Zone currently
stands at 73:27

•Total sales in the northern region is 10.74

million tons.

•The exports in this region contribute 98

percent of the total industry exports mainly
due to location advantage
The northern zone’s export contribution is of 1.07
million tons

The total Northern region sales contribute to 79

percent of total industry sales coupled with low
transportation costs.
 SALES IN NORTHERN ZONE IN 2004-05
Askari Cement (Wah) exports 60,025 tons
Askari Cement (NZP) exports 40,390 tons
Best Way exports 246,289 tons
Cherat exports 191,383 tons
Dandot exports ---
D.G. Khan exports 159,870 tons 2004
Fauji exports 113,314 tons 2004
Fecto exports 31,795 tons 2004
Kohat exports 111,352 tons 2004
Lucky exports 117,235 tons 2004
Pioneer exports 3,100 tons 2004
Saadi exports 1,280 tons 2004
SALES IN SOUTHERN ZONE IN 2004-05
Attock Cement 603,975 tons
Dadabhoy 349,688 tons
Essa 260,171 tons
Javedan 450,442 tons
Pakland 509,645 tons
Pakistan Slag 60,100 tons
Thatta 394,644 tons
Zeal Pak 261,078 tons
 Rivalry

Rivalry exists in three forms:

• Proximity
• Product quality
• Product variety
 Price

high DG Khan
Lucky
Attock

Dewan
Al-Abbas

Javedan
Zeal Pak
Dadabhoy

low
Low High
Product Quality Image
 Region

North
DG Khan
Lucky

Zeal Pak
Javedan
Dadabhoy

Al-Abbas
Attock
Dewan

South

low high
Geographical proximity
to Al-Abbas
 Region

North
Thatta

Dewan
Javedan
Attock

Pakistan Al-Abbas
Slag Zeal Pak
Dadabhoy
South

Slag SRC OPC

only
Slag SRC
 International rivalry
• Pakistan’s major competitors are China, Iran
and India
• Iranian cement prices were much lower, i.e.,
US $32 per tonne
• Pakistani price of US $70 per tonne.
• Pakistani exporters have now become more
competitive and are exporting better quality
cement at US $30 per tonne
•Iran’s domestic demand for cement ahs
increased.
•Competitive edge over Iran in exporting to
Northern Afghanistan.
•Prospects of exporting to UAE, but new
plants are coming up there with added
facilities.
Type Of Pakistan Iran India
Cement Strength in
Newton/

Ordinary 34.5 81.5 33

Portland
High strength 41 NA
Portland
Rapid 46 Na NA
hardening
Portland
Sulphate 34 27 33
resistant
White cement 27.6 31.5 30
Blast Furnace 34 NA 33
 Strategy
• All Pakistan Cement Manufaturer’s Association
(APCMA), sets prices for the cement industry

• Though in our analysis all the cement companies

refused the presence of APCMA.

• Profitability depends upon the economies of scales,

locational advantage and proximity to markets.
•Reducing the cost of sales and financial
charges are the core strategies.
•They have restructured their foreign loans
with cheap local credits
 Related And Supporting Industries
• Mining sector
• Transportation industry
• Packaging industry
• Power and energy sector
• Construction sector
•At present a lot of companies have gone into
backward and forward integration.
 Chance
• The war in Afghanistan and Iraq have induced
international demand.

• Increase in Iran’s domestic market for cement.

• Shortage of cement in Gulf.

 Role Of Government
• At present, the Govt. has removed import
subsidies and levied import subsidies.

• The central excise duty on cement is

Rs.750/ton.

• The industry tax rate is 15%.

 Issues
• Removal of export subsidies
• Import subsidies
• Increase in price of coal in the future
• Shortage
 Recommendations
• Masonry cement
• Improving import facilities
• Tax reduction instead of import subsidies a
better option
• Lower energy consumption.
Conclusion