Research Report: Cement Sector of Bangladesh
Date: April 05, 2011
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. It‟s 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%)
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50% 10.1 7 1 1 .4 8 % 18. It is expected that if the ongoing expansion plans complete within FY2011.82% 31. 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.96%
Considering the „Life cycle of the industry‟.5 7 1 3 .14% 14.9 5 Growth rate % 5 . pass through of input cost will be easier and clinker (main raw material of cement) price is expected to remain stable at $53-$58.3 5 1 9 . It is expected that cement companies will enjoy a good growth of margin over the next 3 years. industry is dependent on only 13 companies‟ production.80% Ca p a c i t y ( m n M T) 1 1 .1 0 % 23.4 4 1 7 . Sales of cement are increasing due to growing demand for cement in both the local and foreign markets. 3 8 % 4 .6 3 % 2 .5 63 65
90 80 70 60 50 40 30 20 10 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
45 30 20
Source: IDLC Research
Cement consumption has steadiliy been rising.6 0 8 .Cement Consumption (kg) Per Capita
84.5 4 1 0 .9 3 Growth rate % 18.4 0 8 .2 0 8 . currently cement industry of Bangladesh is in the growth stage. Currently.2 0 1 4 . another basic trend in cement industry is smaller companies are shutting down and the bigger companies are becoming bigger. multinational cement companies are facing intensive competition with local companies.2 0 % 6 .38% 20. 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. in next couple of years when large capacities are expected to come on-stream. The industry realized about 30% and 21% growth in 2009 and 2010 respectively
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. Local manufacturers have been pursuing more innovative and agressive business strategy compared to multinationals. Industry Demand & Production
Year 2005 2006 2007 2008 2009 2010 Consumption (m n M T ) 7 . the total production capacity of the industry will rise by 61%.9 1 1 2 . Becasuse.53% -2 . In addition. 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. Leading cement manufacturers are now going for expansion.
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. Urbanization and demand for accommodation are increasing day by day. Also. There is no “Substitute” for Cement. Steel can be used in construction but in limited extent due to its high cost. Industry expected demand growth is 20%-25% for the next three years based on the assumptions below. 28% people of our country live in urban areas where the population growth is 3.supply gap leading to over capacity and falling margins and prices. Good number of large infrastructure construction projects (Padma Bridge.2 per thousand. highways) are on the pipeline. 1. given the close linkages between them.
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. Thus it is expected that the real sector will grow steadily with the household users‟ increasing cement consumption pattern. Private sector may get interested to invest in real estate for getting tax advantages of their undisclosed funds 4. 2. According to the UN Population Fund (UNFPA) report 2010. Government would be able to materialize its important ADP.after suppressed demand from previous years. 5. some caution has to be maintained due to the current demand. 3.
On the flip side. Flyovers.
ACRONYMS AND ABBREVIATIONS
ASM = American Standard Method BCMA= Bangladesh Cement Manufacturing Association CNF = Cost & Freight ESM = European Standard Methods OPC = Ordinary Portland Cement PCC = Portland Composite Cement UNFPA = UN Population Fund
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0 mn MT. industry attained expanded capacity of the product with stable growth rate of consumption. increased pace of urbanization.
2. These companies were: Meghna Cement (owned by Bashundhara group) Eastern Cement (currently known as Seven Horse) Chatok Cement Chittagong Cement (taken over by Heidelberg where the local brand is called Ruby)
After a decade.1 Cement Industry Overview
Development of cement industry in Bangladesh dates back to the early-fifties but its growth in real sense started only about a decade.93 350 97. Government gave permission for establishing cement industries in Bangladesh in FY1995. Within the span of the two to three years. There were mainly four dominant players in the cement industry in the year 1998 that produced their own cement to meet the demand of their customers. all factories are in operation 2.1.
Market size derivation
Total demand (mn MT) Standard Price per beg (BDT) Total Market size (BDT mn) Total Market size (USD bn) 13. especially with implementation of large infrastructure projects. The current installed capacity of the industry is 20. currently 123 companies are listed as cement manufacturers in the country. A faster growth in demand for cement has been observed only since mid-1980s.The country has been experiencing an upsurge in cement consumption for the last five years. currently the acutal capacity is about 13.0 mn MT. This installed capacity has been calculated under two conditions below: 1. construction of apartment buildings and multistoried shopping complexes in urban areas and a shift in the taste of rural people for modern houses. Among them 63 have actual production capacity while 32 are in operation.35
Source: BCMA & IDLC research
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.0 STATE OF THE INDUSTRY 2. production is at its peak season Though the installed capacity is 20.96 mn MT due to supply constraints for power and clinkers. Initially the cement industry took place without the proper analysis of the demand and supply of cement in the country.510 1.0
Gradual substitution of traditional building structures or patterns by modern high-rise ones has pushed up the use of cement.
91 8.96 13.40 12.00 10.93 10.57
Consumption (mn MT)
Capacity (mn MT)
Multinationals .35 11.5 Kg 123 63 32 8 260 10% 8% 32% 25% / year 78%
Source: BCMA & IDLC research
Industry Demand & Production scenario 20.00 -
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.17 7.20 8.60 11.95
Local Manufacturers.00 5.Overview of Cement Industry
Total Production capacity (mn MT) Industry average utilization rate Actual capacity excluding obstacles (mn MT) Local consumption (mn MT) Per capita consumption (FY2010) Total factories registered Factories started operation Currently plants in operation Factories exporting cement to India Size of export in FY2010 (K MT/year) Construction % of GDP Construction sector growth in FY2010 (according to BBS) Industry consumption growth in FY2010 Expected industry growth rate in next 5 years Largest 13 cement companies hold (market share) 20 70% 13.44 17.93 84.
As a result. Chittagong and Mongla account for 91% of total consumption. though the yearly capacity of the industry is saturated with overcapacity.00%
15. like most capital-intensive commodity industries.50%
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. or the capacity additions could exceed demand. This makes cement a regional commodity where lower distribution cost makes it remunerative to producers.
3. it is likely that before completion. Cement demand declines during the monsoons due to a slowdown in construction activities. the cement industry. demand could decrease or stagnate. market demand gets matched or cross the effective capacity during the first 5 to 6 months of the year. In addition. resulting in lower margins to the players. demand increases.0 INDUSTRY CHARACTERISTICS 3. per capita income and level of industrial development differ in each region. leading to capacity additions by existing players and the entry of new players. In our country Dhaka. However. Given the high gestation period of 24-30 months. low-value commodity. is cyclical in nature with respect to supply. Cement consumption varies region wise because the demand-supply balance. and the industry could face a downturn. the profitability rises. there is a time lag between capacity build-up and cement demand.3.50% 12. Cement demand is closely linked to the growth of the construction sector. This can lead to a fall in cement prices. when the construction sector is strong.2 Cement Industry – Regional in Nature
Cement is a high-volume.50% 7. leading to reducing operating rates or shutting down capacities.50%
1. Transporting over long distances adds to the cost. Hence.
Area wise consumption:FY2010
63. since it takes 2 -2.1 Seasonality and Cyclicality of the Industry
Seasonality of cement industry
Peak Season Dull/off Season (depends on monsoon)
January to April/ May and October to December June to September
Bangladesh cement industry is known for its seasonality which can be as high as 50%. On the other hand.5 years to build a cement plant.
more expansion will be needed to meet the large demand of govt infrastructures. companies used to charge premium. However. recently industrial and infrastructure sectors have also emerged as demand drivers. Other expenses Cost elements Power and fuel costs Raw material costs Transportation costs Other expenses % of cost of sales 10% 75% 5% 10%
Source: IDLC Research
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.0 COST AND PRICING STRUCTURE 4. Transportation costs 4. the demand-supply situation is tightly balanced with the latter being marginally higher.1 Cost Elements
There are a number of cost elements which are taken into consideration for price fixations of cement bags. End users of the product get benefited if they are near to the distribution plant of the company. As the cement industry is dependent on few companies‟s production. Access to cheap source of clinker supplier also acts as a significant entry barrier. Currently international price of clinker is stable. Housing sector acts as the principal growth driver for cement.
Barriers to entry
Bargaining power of suppliers
Bargaining power of customers
4. But any kind of volatility in its price remained a concern.Key points Supply At present. Intense competition among players regarding price due to homogeneous product. brands used to charge premium on account of better quality perception also. High capital costs and long gestation periods. But when their positioning is at distance from the distribution plant. Moreover. Raw material costs 3. Our cement industry depends on imported raw materials. Power and fuel costs 2. Four major costs are associated with the production of cement as provided: 1.
Indonesia. Indonesia. Power and fuel costs
Cement industry is power-intensive with power and fuel costs constituting approximately 7%-10% of the cost of sale of cement.1. About 10-15 million tonnes of clinker is imported annually from Thailand. Except Lafarge. the reduction in the price will certainly help the cement producers to get cost advantage. Transportation cost
The weight/ price ratio of cement effects transportation cost significantly. determines the plant‟s competitive position and price it may charge. China. ironslag and gypsum.
3. the price began to decline. But at the end of 2009. As clinker makes about 60%-70% by monetary value of the total raw material of cement. increasingly large companies are opting for captive power plants to reduce costs and to have continuous power supply. all other cement manufacturers of Bangladesh import clinkers. Raw material costs
The second major component in the production of cement is raw material costs.
2. 30 KW to 35 KW electricity is needed for producing per MT cement. Philippines and India
Source: IDLC research
Cost derivation of Clinker (on an average) CNF (cost & freight) cost in CTG Vat on landing at CTG Total cost of Clinker (landing at CTG) Vat on landing at Dhaka Total cost of Clinker (landing at Dhaka)
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. Main raw material of production is clinker which accounts 70-75% of the COGS. But currently. standard price of clinker in international market is $52 to $58 per tonne.Philippines and also in small quantity from India by railway. Malaysia. Location of a cement plant and the cost to transport the cement to its distribution terminals.00 BDT 350 or $5 /ton $ 58.China. and hence has a major impact on the operating expenditure of the manufacturers. At present. Raw material Key raw material Additives Major Exporters of Clinker
Clinker Gypsum and Fly ash Thailand.00 BDT 840 or $12 /ton $ 65. other raw materials used by the cement industry are fly ash.00
Source: IDLC Research
Apart from clinker. Though a large portion of the power requirement is met through national grid. even Lafarge is also dependent on imported clinker due to the unavilability of Limestone. The price of clinker increased to $73 a tonne in 2009 from $55-63 a tonne in 2008. Bangladesh does not have its own supply of limestone and cannot produce clinkers domestically. 1718 cement manufacturers got captive power plants. Currently. Malaysia. lowest price was $42 per tonne.
like all commodity prices. These account for 5-10% of the cost of sales. anti.
4. However. the ruling market price of cement becomes different in different regions.
4. cement prices. unless there is an equivalent rise in demand. others. 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.0 per bag over the next 3 years.dumping position of cement manufacturer. brand image. price of one bag of cement produced by the local companies‟ ranges within the price bracket of BDT 340 to BDT 365. Price may not increase in line with increasing demand as the cost of sales may dip due to stable clinker price and increasing supply of product. price war is a sensitive issue in this industry which exists from time to time in the cement market. Seasonal factors like weak demand during monsoon in most areas also put pressure on prices. administration expenses. But if the demand does not rise proportionately to absorb the additional supply. On the other hand. future tariff policy etc. Hence. The factories which would be using captive power.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. the units would have to lower price to induce more sale to maintain the required level of revenue income.2 Pricing Structure
The pricing of cement of various players in the industry are very close to one another. Moreover. As the freight cost accounts for a substantial proportion of sales price. are influenced by demand-supply dynamics. Other expenses
Other expenses include employee costs. will have an impact on price of cement in future.
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. price of cement in international market.0 . The quality of cement. Due to the presence of homogeneous products in the market. Cement prices have been on an upward trajectory since 2007 in line with steady increase in clinker costs. export potential. the standard price of one bag of cement produced by the multinational cement companies ranges within BDT 370 to BDT 390 per bag. the large capacity expansions are expected to weigh down on price realizations by cement companies due to increasing availability of product.BDT 10. Currently. average price of cement is expected to increase by BDT 5. Additional capacity utilization of the existing units as well as commissioning of new producing units is likely to bring down the sales price.
1 Ordinary Portland Cement (OPC) and Portland Composite Cement (PCC)
Till 2002. When wet raw materials (moisture content over 20%) are available. After cooling it. Firstly.2 Technology
The manufacture of cement is a two-phase process. The cement which is widely used from the year 2003 is the Portland Composite Cement (PCC) which is made following European Standard Methods (ESM). today‟s new cement plants are all based on the dry
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. various types of cements became available in Bangladesh which helped the cement industry to provide differentiated and improved products to the customers. only one type of cement was available in Bangladesh was Ordinary Portland Cement (OPC) which is made following the American Standard Method (ASM). Holcim (Black Cement) was the first company to launch this type of cement in the market. in Europe. clinker is formed. the wet process can be preferred. 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.5. Two basic types of clinker production processes exist. water is added to form wet thick slurry and dry process is based on drying the bulk materials to form a dry powdered meal. Only 65%-80% of clinker is required to produce PCC while 95% of clinker is required to produce OPC. PCC gives equal strength and durability like OPC. The choice of process depends on moisture content of the available raw material.0 PRODUCT AND TECHNOLOGY 5. worldwide PCC has become popular which requires less clinker. The basic difference between them is in the manufacturing technology. depending on the way the raw materials are prepared before entering the kiln system: Wet method (use in Bangladesh) Dry method
In the wet method. So.com
5. limestone and fly ash to produce Portland cement. From the year 2003. Clinker is produced.cemweek. Secondly.
Portland Composite Cement (PCC) Ingredients used in PCC Clinker Slag Fly Ash Limestone Gypsum Ordinary Portland Cement (OPC) Ingredients used in OPC Clinker Gypsum
Ratio 65-80% 21-35% 0-5% Ratio 95-100% 0-5%
Source: www. Currently ratio of production of PPC and OCC is 95:5. the clinker is ground with calcium sulphates and with industrial processes wastes such as blast furnace slag. However.
process as the wet process requires approximately 56% to 66% more energy. the kind and the amount of the other constituents determine the type of cement. For example.
Standardization-Bangladesh is maintaining
Standardization Main constituents BSTI (Bangladesh Standardization Authority) has been adopted the European Norms and titled as BDS EN 197-1:2003 a) Clinker b) Slag c) Fly ash d) limestone e) Gypsum
Bangladesh has adopted EN197. the availability of PCC is 95% against 5% of OPC. Under this Standard there are 27 products in the family of common cements. titled BDS EN 197-1:2003.composite cement CEM III Blast furnace cement CEM IV Pozzolanic cement CEM V Composite cement
While clinker is the main component in all types of cements.
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. Each step in manufacture of portland cement is checked by frequent chemical and physical tests in plant laboratories.1:2000 as Bangladesh Standard. All cement types also contain up to 5% of calcium sulphates. whereas Portland composite cement contains of only 65% clinker. Portland cement consists of 95% clinker. which are grouped into five main cement types as follows:
CEM I Portland cement CEM II Portland. The finished product is also analyzed and tested to ensure that it complies with all specifications. current state-of-the-art technologies are kiln systems with multistage cyclone preheaters and precalciners.cembureau. For dry processes. In our country recently.
Market share of major cement companies Market share
Shah cement Heidelberg Cement Meghna Cement (MCML-King) Seven Circle BD Ltd.29%
Market share of Multinational cement companies Market share
Heidelberg Lafarge Surma Holcim Cemex Emirates 9. closely followed by Heidelberg with about 9.1% 4. Shah cement is the market leader with close to 14.0% 2.7% 6.31% 6.9% 4.8%
Total market share of largest 13 companies
78. many small local manufacturers like Premier.78% 1.2% 9.67% 6. During the 2010. Heidelberg. Crown.0 PRODUCERS AND CONSUMERS OF THE INDUSTRY 6. Seven Circle.7% 3.3% 7.64%
Total Market Share
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.20% of the market share. Unique Cement (Fresh) MI Cement (Crown) Premier Cement Akij Cement Royal Cement Mongla Cement (SKS)-Elephant MTC Cement (Tiger) 14.4% 6. Holcim and Lafarge are the leaders among multinational cement manufacturers and Shah and Meghna are the leading domestic manufacturers.30% of the market share. Holcim BD Ltd.9% 6.45% 2.4% 6.0% 3. Fresh and King cement increased their sales drastically riding on their benefits of economies of scale. backward linkage and aggressive marketing effort.9% 2.1 Major Producers of the Industry
The largest 13 cement manufacturers hold 78% of the market share.6. Lafarge Surma Cement Ltd.
109.00 73.5% 100%
Rajshahi Area Total
Source: IDLC Research
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.380.435.020.378.5% 1.560.369.887.540.563.00 203.497.6% 0.350.852.495.17 4.8% 1.00 225.4% 2. 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.00 2.376.00 103.0% 3.2% 2.97 11.437.0% 1.33 4.
1 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 1 2 3 4 5 1 Mongla Area
Name Of Cement Company
Lafarge Surma Cement Ltd.335.0% 0.527.881.228.00 8.183.89 70.00 1.349.00 65.294.7% 14.917.75 1.00 13.636.730.78 33.8% 1.948.5% 0.92 11.00 54.58 18.30 397.653.030.5% 5.9% 4.4% 1.22 25.0% 6.74 112.538.00 887.29 31.159.04 785.530.6% 63.00 502.7% 12.4% 2.738.473.65 136.83 17.087.968.513.5% 3.109. 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
Yearly Total Consumption (MT)
Average consumption/year (MT)
76. Chattak Cement Total Scan Cement Shah cement MI Cement (Crown) Premier Cement Holcim BD Ltd.4% 3.00 209.00 1.2% 4.7% 1.160.779.30 1.95 138.310.42 8.80 547.280.1% 2.136.075.67 20.585.635.) SL.483.00 141.685.4% 6.92 728.9% 6.968.00 953.950.538.19 85.8% 7.055.625.583.83 34.823.771.50 162.00 158.900.00 192.254.961.9% 1.625.5% 1.00 230.125.Revenue & market share of companies:FY2010 (appx.74
6.75 16.08 56.749.67 79.630.00 1.290.83 7. Seven Circle BD Ltd.106.843.8% 1.16 16.00 87.342.021.83 13.017.60 311.96 41.00 53.75 16.90 203.00 246.815.44 382.767.8% 1.33 19.83 137.25 11.17 41.6% 0. No.98 45.00 673.3% 15.62 844.81 9.00 385.00 32.681.969.7% 0.205.461.790.190.58 85.189.46 496.0% 1.00 417.224.0% 7.
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
Shah Cement Meghna Cement Mills Ltd.Alam Cement Mills Ltd. Dubai (BD) Cement Mills Ltd.90 0.010
Total installed capacity (mn MT) Actual capacity (mn MT) Total Demand (mn MT) 19.96 13. (Dhaka) Holcim Cement (BD) ltd.18 0.G.44 17.72 0.11 6.25 1.81 0.41
in mn MT Growth rate
61% 61% 25%
Source: IDLC Research
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.40 0.65 1. Confidence Cement Ltd.75 1.35 0.32 1.10 1.20 1.95 13.21 0.26 0. S.65 2.26 1. (Mongla) M.18 0. Mir Cement Metropoliatan Cement Ltd.50 0.86 4. Chatak Cement Ltd. Olympic Cement Anwar cement Ltd.24
Probable completion year
1.60 1.18 0. Akij Cement Ltd.60 0.47 2.C Cement Ltd.93
32. Eastern Cement Ltd.06 22.88
Sep-10 Jun-11 End of 2011 Not finalized
1. Heidelberg (Scan) Lafage Cement Premier Cement Seven Circle cement Ltd. Aman Cement Factory Ltd.56 1. Aramit Cement Ltd.80 0. Cemex (BD) Ltd.60 0.18 0.60 0.I Cement Factory (300 days) Unique Cement Ryal Cement Mongla Cement Factory Emirates Diamond Cement Factory M.25 0.T.20 1.80 0.18 0.51 0.98
Total capacity after expansion (mn MT/year)
End 2011 Not finalized 2011
0.Current and Upcoming Capacity of Running Cement Industries in Bangladesh Present capacity (mn MT/year)
2.Saha Cement Mills Ltd.54 0.
Probable capacity expansion (mn MT/year)
1.62 1.84 0.65
Source: IDLC Research
Industry Outlook in FY2012 2.36 0. Alhaj Mustafa Hakim Cement Noapara Cement Mills Ltd.90 0.72 0.49 End 2011
Sl.18 0.44 1.18 0.20 1. Heidelberg (Rubi) Holcim Cement (BD) ltd.02 0.80 2.18 0. N.18 0.
flats etc.. LGED.80%
Cement consumption Growth in last 5 years
Source: IDLC Research
Cement Consumption (kg) Per Capita
84.74% 5.63% 6. organizations.43% 6. projects are the dominant users of cement. during that time period.. RHW etc.40 8.54 10. Real estate developers 3.6.2 Major Consumers of the Industry
In Bangladesh.e.e.20 8. Govt.19% 5.93
11% -2% 4% 24% 32%
GDP Growth rate
5. the main cement consumers are: 1. i. Individual home makers 2.57 13. i. Unwillingness to disclose the source of income contributed to the downward trend in real estate sector. building of apartments.60 8.96% 6.5 63 65
90 80 70 60 50 40 30 20 10 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
45 30 20
Source: IDLC Research
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Major User Group of Cement
Individuals Real estate developers Government projects 25% 35% 40%
Source: IDLC Research
Real estate developers and Govt.
Cement Consumption and GDP Growth rate MT (in mn) Year
2005 2006 2007 2008 2009 2010 7. During 2007-2008 public sector construction works were slowed down under caretaker government.
High duty charge is one of the main stumbling-block of cement export. distributors and end-users.0 EXPORT OF CEMENT: SIZE OF EXPORT IS 260 K MT/YEAR
Cement industry started export from FY2007. If the government make the duty structure more industry-friendly by exempting some duties on exportable cement and granting cash incentives.
9.0 DUTY STRUCTURE OF THE INDUSTRY
Favourable Government policy in the form of tariff protection and low price of clinker in the international market have lead to mushroom growth of clinker crushing units in the country.0 VALUE CHAIN
Supply chain of the industry primarily comprises raw material suppliers.Nepal.7. companies exporting cement to northeastern states of India are as below: 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. Wholesalers-cum-retailers operate in rural areas. cement exporting to Sri Lanka. Currently. 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.Bhutan and the Middle Eastern (ME) countries will be feasible in future. Transportation cost is major concern to export cement. Current duty structure of raw materials
Clinker Slag Fly ash Gypsium Limestone BDT 350/ton 12% on invoice value 25% on invoice value 12% on invoice value 12% on invoice value
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. Government has imposed a supplementary duty of 7% on import of clinker and 25% on import of cement which is in favour of local manufacturers for the further growth of the industry.
8. cement manufacturers. Thus exporting this product to countries which are reachable through connecting water bodies is much more feasible in terms of cost and accessibility. The primary distributors in the supply chain are wholesalers (large traders with a margin of BDT 5-7 per bag) and retailers (small traders with a margin of BDT 10-20 per bag).
4% despite it bought three plants in quick succession more than half a decade back as it planned to emerge as the top player in the country.1 Dominance by Local Companies
Currently. Its too difficult to the small manufacturers to survive in the industry due to the shortage of raw materials since small companies face difficulties to arange the raw materials in competitive price.0 CURRENT SCENARIO OF THE INDUSTRY 11. the basic trend in cement industry is smaller companies are shutting down and the bigger companies are becoming bigger. rebate. local companies are more focused to keep the overhead costs low. infrastructure.
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. but together they make up only around 27% of the Bangladesh market. Currently. Holcim's market share is around 6. Multinationals bear high overhead costs regarding salary. But local comapanies are concetrating in offering quality product with additional benefits like home delivery system. multinational cement companies are facing intensive competition with local companies. have built big plants to reduce cost of production and have a fleet of trucks to carry the products right to the doorsteps of consumers. pass through of input cost will be easier. have been struggling to survive in the industry. On the other hand. Holcim and Heidelberg are among the top ten cement companies in the world. a subsidiary of the country's biggest conglomerate Abul Khaer Group is now in the top of the industry beating Heidelberg and Holcim by deploying a fleet of trucks in the main growth areas and building the best marketing network in the country.3% despite it has been in Bangladesh for nearly a decade. Local companies are investing in backward linkages (captive power plants).10. Local companies are grabbing the top slot of the industry by operating in economy of scale and with deft marketing strategy. Only 10-15 companies are holding 80% of market share. its been expected that cement companies will enjoy a good growth of margin over the next 3 years. Multinationals are only concentrating in providing high quality products. gifts etc. For example.
11. Local manufacturers have been pursuing more innovative and agressive business strategy compared to multinationals. the world's first and the second largest cement companies. Cemex. quality control etc. Scancement of Heidelberg Group is the biggest among the foreign companies.0 STEADY GROWTH MARGINS
In next couple of years when large capacities are expected to come on-stream. 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. Moreover. Lafarge and Cemex. Lafarge. but its market share is around 9.
11. Therefore. Shah cement . clinker (main raw material of cement) price is expected to remain stable at $53-$58. the local companies have made rapid strides. Quality-wise also.2 Industry Survivors: Large Companies
During last five years almost 32 cement companies have been shut down due to inadequcy of raw materials.
currently cement industry of Bangladesh is in the growth stage. 28% people of our country live in urban areas where the population growth is 3.8% 1. Thus it is expected that the real sector will grow steadily with the household users‟ increasing cement consumption pattern. 2. According to the UN Population Fund (UNFPA) report 2010.22 2010 (est.6% 1.8% 1.) 164.00 2009 162.73 2005 153.
Population Growth rate of Bangladesh Total Number of population Year (mn) 2000 140.2 per thousand. The industry realized about 30% and 21% growth in 2009 and 2010 respectively after suppressed demand from previous years.46 2007 157.12 2006 155.4% 1.0 FUTURE OUTLOOK OF CEMENT INDUSTRY OF BANGLADESH
Considering the „Life cycle of the industry‟.6% 1.40 2050 176.7% 1.
Industry expected demand growth is 20%-25% for the next three years based on the assumptions below.12.77 2001 143.53 (forecasted)
Population Growth Rate 1.3% 7.80 2003 148.28 2004 150. Sales of cement are increasing due to an enormous demand for cement in both the local and foreign markets.29 2002 145.4% 1.8% 1.5% 1. 1. Government would be able to materialize its important ADP of building big infrastructure projects.5% 1. Urbanization and demand for accommodation is increasing day by day.75 2008 160.4%
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In terms of cement production. Other countries featuring prominently on the global cement space include Spain.0 CEMENT INDUSTRY: GLOBAL SCENARIO
13. Japan and Russia. Good number of large infrastructure construction projects (Padma Bridge. 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. Flyovers. Private sector may get interested to invest in real estate for getting tax advantages of their undeclared funds 4. According to Global Industry Analysts. On the flip side. The world production of cement is dominated by China (1. and Brazil are underway and planned for the next few years.
Cement Statistics by U. together account for more than 50% of the total cement produced and consumed in the world. India. Gains will be fueled by rising investments in
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. Also. and Brazil. given the close linkages between them.6 billion tons/year (FY2010). United States.1 Major Players
World production of cement is 2. some caution has to be maintained due to the current demand. China and India. Inc. Italy. Egypt. followed by India (260 mn MT). UAE.
13. Turkey. There is no “Substitute” for Cement.supply gap leading to over capacity and falling margins and prices. South Korea.3. highways) are on the pipeline.S. Significant capacity expansions in China. global demand for cement is forecasted to rise 4. Bangladesh ranks about 40th in the world.Geological Survey
world production( m)
3500 3000 2500 2000 1500 1000 500 0 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
The largest global players are Lafarge (France). 5.1% per year and reach to 3. Western Europe and Japan are mature and currently facing declining demand due to the global economic crisis. Iran.400 mn MT). Developed markets including the US. Holcim (Switzerland) and Cemex (USA). Turkey.. Saudi Arabia. Steel can be used in construction but in limited extent due to its high cost.5 billion metric tons in 2013.
After FY1970. From FY2000.000 135 130 65
Asian group Middle east World average
400 600 270
Global Cement Consumption
mn MT FY 2007 FY 2008 FY 2009 2. China. Hongkong. Basically.
Top Five Global Producers (mn MT/year)
China India Japan USA Russia 1. global demand of cement is rotating according to the growth of the construction sector in each region.4
13. High Demand for cement continued in these areas till FY1990.infrastructure among the developing countries of the world. advances in cement demand has slowed down considerably from the robust gains seen during the 2003-2008 period. Nepal and Burma are now enjoying high growth rate of cement consumption. all are enjoying stable growth rates of exceeding 6% per year. by nature. however.763 2. Eastern Europe and the Africa/Mideast region.9 7. Singapore and Korea. This trend is expected to continue till FY2035. Pakistan.857 CAGR % 9.2 Strong Future Growth of Developing Asian countries
A number of developing countries in the Asia/Pacific region is attaining strong gains in cement consumption. Malaysia. developing countries of Asian regions like Bangladesh. cement demand shifted to India.6 3. Thailand and Vietnam. Other fast-growing markets for cement in the region like Philippines.200 1. is facing a slowing rate of growth as construction spending is decelerating. which accounts for nearly half of world cement demand. High demand for cement had been observed in Europe and America during FY1960-70.568 2.400 260 84 68 53
per capita consumption (kg) : FY2009
Korea China India Pakistan Bangladesh 1.
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. driven by economic growth and increasing per capita income levels. Western Europe and Japan is lagging the average global pace of growth. Increases in cement demand in the developed areas of the US. In the developing nations of Latin America.
Moreover none of the director.14. finished cement. 12% and 7% respectively) continues i. completeness. leading to demand supply mismatch. Our cement consumption per year was only 65kg in FY2009 whereas. member of the management or employee in any way be responsible about the genuineness. e. Neither IDLC nor any of its director.
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. So there is a lot of opportunity to grow in this industry. shareholder.
Industry Opportunities & Threats Opportunities
Strong economy Construction sector growth Govt. it would impact the growth in consumption of cement. 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. Whilst all reasonable care has been taken to ensure that the facts & information stated in the Document are accurate as on the date mentioned herein. If any person takes any action relying on this Document. in India its 135 kg and in Pakistan its 130kg. semi-finished cement and basic raw materials for cement (25%. If housing sector growth wanes. internally developed data and other sources believed to be reliable. complete. authenticity and correctness of the contents of the sources that are publicly available to prepare the Document. accurate. 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. Government initiatives in the infrastructure sector and the housing sector are likely to be the main growth drivers. accuracy. It does not solicit any action based on the materials contained herein and should not be construed as an offer or solicitation to buy sell or subscribe to any security. 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.e. authentic and correct.0
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. 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.g. shareholder. If the import duty structure of various cement products. support on local manufacturing rather than importing Growing urbanization
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 the market.