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ZEBUN NAHAR

INVESTMENT ANALYST

znahar@idlc.com

Research Report: Cement Sector of Bangladesh


Date: April 05, 2011

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%)

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Cement Consumption (kg) Per Capita


84.5

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

Source: IDLC Research

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

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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.

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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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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.

2.0 STATE OF THE INDUSTRY


2.1 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.The country has been experiencing an upsurge in cement
consumption for the last five years.
Government gave permission for establishing cement industries in Bangladesh in FY1995. Initially the
cement industry took place without the proper analysis of the demand and supply of cement in the
country. Within the span of the two to three years, industry attained expanded capacity of the product
with stable growth rate of consumption.
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. 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, 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.

Market size derivation


Total demand (mn MT)
Standard Price per beg (BDT)
Total Market size (BDT mn)
Total Market size (USD bn)

13.93
350
97,510
1.35
Source: BCMA & IDLC research

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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%
13.96
13.93
84.5 Kg
123
63
32
8
260
10%
8%
32%
25% / year
78%
Source: BCMA & IDLC research

Industry Demand & Production scenario


20.00

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

Consumption (mn MT)

2009

2010

Capacity (mn MT)

Industry structure
Multinationals ,
27%

Local
Manufacturers,
73%

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3.0 INDUSTRY CHARACTERISTICS


3.1 Seasonality and Cyclicality of the Industry
Seasonality of cement industry

Peak Season

January to April/ May and


October to December

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.

3.2 Cement Industry Regional in Nature


Cement is a high-volume, low-value commodity. Transporting over long distances adds to the cost,
resulting in lower margins to the players. This makes cement a regional commodity where lower
distribution cost makes it remunerative to producers. Cement consumption varies region wise
because the demand-supply balance, per capita income and level of industrial development differ in
each region. In our country Dhaka, Chittagong and Mongla account for 91% of total consumption.

Area wise consumption:FY2010


63.50%

15.50%

1.50%
7.50%

Dhaka

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Mongla

12.00%

Chittagong

Sylhet

Rajshahi

Key points
Supply

At present, the demand-supply situation is tightly balanced with the latter


being marginally higher. As the cement industry is dependent on few
companiess production, more expansion will be needed to meet the
large demand of govt infrastructures.

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

Our cement industry depends on imported raw materials. Currently


international price of clinker is stable. But any kind of volatility in its price
remained a concern.

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

Intense competition among players regarding price due to


homogeneous product.

4.0 COST AND PRICING STRUCTURE


4.1 Cost Elements
There are a number of cost elements which are taken into consideration for price fixations of cement
bags. Four major costs are associated with the production of cement as provided:
1. Power and fuel costs
2. Raw material costs
3. Transportation costs
4. 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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1. 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, and hence has a major impact on the operating expenditure of the
manufacturers. 30 KW to 35 KW electricity is needed for producing per MT cement. Though a large
portion of the power requirement is met through national grid, increasingly large companies are
opting for captive power plants to reduce costs and to have continuous power supply. Currently, 1718 cement manufacturers got captive power plants.

2. Raw material costs


The second major component in the production of cement is raw material costs. Main raw material of
production is clinker which accounts 70-75% of the COGS.
Bangladesh does not have its own supply of limestone and cannot produce clinkers domestically.
Except Lafarge, all other cement manufacturers of Bangladesh import clinkers. But currently, even
Lafarge is also dependent on imported clinker due to the unavilability of Limestone. About 10-15
million tonnes of clinker is imported annually from Thailand, Indonesia, Malaysia,China,Philippines
and also in small quantity from India by railway. The price of clinker increased to $73 a tonne in 2009
from $55-63 a tonne in 2008. But at the end of 2009, the price began to decline, lowest price was $42
per tonne.
At present, standard price of clinker in international market is $52 to $58 per tonne. As clinker makes
about 60%-70% by monetary value of the total raw material of cement, the reduction in the price will
certainly help the cement producers to get cost advantage.
Raw material
Key raw material
Additives
Major Exporters of Clinker

Clinker
Gypsum and Fly ash
Thailand, Indonesia, Malaysia, China,
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)

$ 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.

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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.

4.2 Pricing Structure


The pricing of cement of various players in the industry are very close to one another. Due to the
presence of homogeneous products in the market, price war is a sensitive issue in this industry which
exists from time to time in the cement market. Cement prices have been on an upward trajectory
since 2007 in line with steady increase in clinker costs. However, the large capacity expansions are
expected to weigh down on price realizations by cement companies due to increasing availability of
product.
Moreover, cement prices, like all commodity prices, are influenced by demand-supply dynamics.
Seasonal factors like weak demand during monsoon in most areas also put pressure on prices. As
the freight cost accounts for a substantial proportion of sales price, the ruling market price of cement
becomes different in different regions.
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.
Additional capacity utilization of the existing units as well as commissioning of new producing units is
likely to bring down the sales price, unless there is an equivalent rise in demand. But if the demand
does not rise proportionately to absorb the additional supply, the units would have to lower price to
induce more sale to maintain the required level of revenue income. The quality of cement, brand
image, export potential, price of cement in international market, anti- dumping position of cement
manufacturer, future tariff policy etc. will have an impact on price of cement in future.
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.
Hence, average price of cement is expected to increase by BDT 5.0 - BDT 10.0 per bag over the next
3 years. 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.

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5.0 PRODUCT AND TECHNOLOGY


5.1 Ordinary Portland Cement (OPC) and Portland Composite Cement (PCC)
Till 2002, only one type of cement was available in Bangladesh was Ordinary Portland Cement (OPC)
which is made following the American Standard Method (ASM). From the year 2003, various types of
cements became available in Bangladesh which helped the cement industry to provide differentiated
and improved products to the customers. The cement which is widely used from the year 2003 is the
Portland Composite Cement (PCC) which is made following European Standard Methods (ESM).
Holcim (Black Cement) was the first company to launch this type of cement in the market. Currently
ratio of production of PPC and OCC is 95:5.
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.

Portland Composite Cement (PCC)


Ingredients used in PCC
Clinker

Ratio
65-80%

Slag
Fly Ash

21-35%

Limestone
Gypsum

0-5%

Ordinary Portland Cement (OPC)


Ingredients used in OPC
Clinker
Gypsum

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:

Wet method (use in Bangladesh)


Dry method

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

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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

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- 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:

CEM I Portland cement


CEM II Portland- composite cement
CEM III Blast furnace cement
CEM IV Pozzolanic cement
CEM V Composite cement

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.

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6.0 PRODUCERS AND CONSUMERS OF THE INDUSTRY


6.1 Major Producers of the Industry
The largest 13 cement manufacturers hold 78% of the market share. 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,
closely 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.
Market share of major cement companies
Market share
Shah cement
Heidelberg Cement
Meghna Cement (MCML-King)
Seven Circle BD Ltd.
Lafarge Surma Cement Ltd.
Holcim BD Ltd.
Unique Cement (Fresh)
MI Cement (Crown)
Premier Cement
Akij Cement
Royal Cement
Mongla Cement (SKS)-Elephant
MTC Cement (Tiger)

Total market share of largest 13 companies

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

Market share of Multinational cement companies


Market share
Heidelberg
Lafarge Surma
Holcim
Cemex
Emirates

Total Market Share

9.31%
6.67%
6.45%
2.78%
1.64%

27%
Source: BCMA

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Revenue & market share of companies:FY2010 (appx.)


SL.
No.

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%

Source: IDLC Research

Page 15 of 23

Current and Upcoming Capacity of Running Cement Industries in Bangladesh

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

Source: IDLC Research

Industry Outlook in FY2012


Total installed capacity (mn MT)
Actual capacity (mn MT)
Total Demand (mn MT)

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

6.2 Major Consumers of the Industry


In Bangladesh, the main cement consumers are:
1. Individual home makers
2. Real estate developers
3. Govt. organizations, i.e., LGED, RHW etc.

Real estate developers and Govt. projects are the


dominant users of cement. During 2007-2008 public
sector construction works were slowed down under
caretaker government. Unwillingness to disclose the
source of income contributed to the downward trend
in real estate sector, i.e., building of apartments,
flats etc. during that time period.

Major User Group of Cement


Individuals

25%

Real estate developers

35%

Government projects

40%
Source: IDLC Research

Cement Consumption and GDP Growth rate


MT (in mn)
Year
2005
2006
2007
2008
2009
2010

GR %

GDP Growth rate

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

Cement consumption Growth in last 5 years

83%
Source: IDLC Research

Cement Consumption (kg) Per Capita


84.5

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

Source: IDLC Research

Page 17 of 23

7.0 VALUE CHAIN


Supply chain of the industry primarily comprises raw material suppliers, cement manufacturers,
distributors and end-users. 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).
Wholesalers-cum-retailers operate in rural areas.

8.0 EXPORT OF CEMENT: SIZE OF EXPORT IS 260 K MT/YEAR


Cement industry started export from FY2007. Currently, 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. 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.

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.
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.
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
Source: BCMA

Page 18 of 23

10.0 STEADY GROWTH MARGINS


In next couple of years when large capacities are expected to come on-stream, pass through of input
cost will be easier. Moreover, clinker (main raw material of cement) price is expected to remain stable
at $53-$58. Therefore, its been expected that cement companies will enjoy a good growth of margin
over the next 3 years.

11.0 CURRENT SCENARIO OF THE INDUSTRY


11.1 Dominance by Local Companies
Currently, multinational cement companies are facing intensive competition with local companies.
Lafarge, Cemex, Holcim and Heidelberg are among the top ten cement companies in the world, but
together they make up only around 27% of the Bangladesh market.
Scancement of Heidelberg Group is the biggest among the foreign companies, but its market share is
around 9.3% despite it has been in Bangladesh for nearly a decade. Holcim's market share is around
6.4% 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. Lafarge and Cemex, the world's first and the second largest
cement companies, have been struggling to survive in the industry.
Local companies are grabbing the top slot of the industry by operating in economy of scale and with
deft marketing strategy. For example, Shah cement , 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.
Local companies are investing in backward linkages (captive power plants), 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. Quality-wise also, the local companies have made rapid strides.
Multinationals bear high overhead costs regarding salary, infrastructure, quality control etc. On the
other hand, local companies are more focused to keep the overhead costs low. Multinationals are
only concentrating in providing high quality products. But local comapanies are concetrating in
offering quality product with additional benefits like home delivery system, rebate, gifts etc.
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.

11.2 Industry Survivors: Large Companies


During last five years almost 32 cement companies have been shut down due to inadequcy of raw
materials. 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.
Currently, the basic trend in cement industry is smaller companies are shutting down and the bigger
companies are becoming bigger. Only 10-15 companies are holding 80% of market share.

Page 19 of 23

12.0 FUTURE OUTLOOK OF CEMENT INDUSTRY OF BANGLADESH


Considering the Life cycle of the industry, currently cement industry of Bangladesh is in the growth
stage. Sales of cement are increasing due to an enormous demand for cement in both the local and
foreign markets. The industry realized about 30% and 21% growth in 2009 and 2010 respectively
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 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

Population Growth Rate


1.8%
1.8%
1.8%
1.7%
1.6%
1.6%
1.5%
1.5%
1.4%
1.4%
1.3%
7.4%

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.

13.0 CEMENT INDUSTRY: GLOBAL SCENARIO

13.1 Major Players


World production of cement is 2.6 billion tons/year (FY2010). The world production of cement is
dominated by China (1,400 mn MT), followed by India (260 mn MT), United States, Japan and
Russia. Other countries featuring prominently on the global cement space include Spain, South
Korea, Italy, Iran, Turkey, and Brazil. Significant capacity expansions in China, India, Saudi Arabia,
UAE, Turkey, Egypt, and Brazil are underway and planned for the next few years. China and India,
together account for more than 50% of the total cement produced and consumed in the world.
Developed markets including the US, Western Europe and Japan are mature and currently facing
declining demand due to the global economic crisis.

Cement Statistics by U.S.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), 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.

Top Five Global Producers (mn MT/year)


China

1,400

India

260

Japan

84

USA

68

Russia

53

per capita consumption (kg) : FY2009


Korea

1,200

China

1,000

India

135

Pakistan

130

Bangladesh

65

Asian group

400

Middle east

600

World average

270

Global Cement Consumption


mn MT

CAGR %

FY 2007

2,568

9.9

FY 2008

2,763

7.6

FY 2009

2,857

3.4

13.2 Strong Future Growth of Developing Asian countries


A number of developing countries in the Asia/Pacific region is attaining strong gains in cement
consumption. China, which accounts for nearly half of world cement demand, is facing a slowing rate
of growth as construction spending is decelerating. Other fast-growing markets for cement in the
region like Philippines, Thailand and Vietnam, all are enjoying stable growth rates of exceeding 6%
per year. In the developing nations of Latin America, Eastern Europe and the Africa/Mideast region,
however, advances in cement demand has slowed down considerably from the robust gains seen
during the 2003-2008 period. Increases in cement demand in the developed areas of the US,
Western Europe and Japan is lagging the average global pace of growth.
Basically, by nature, global demand of cement is rotating according to the growth of the construction
sector in each region. High demand for cement had been observed in Europe and America during
FY1960-70. After FY1970, cement demand shifted to India, Malaysia, Hongkong, Singapore and
Korea. High Demand for cement continued in these areas till FY1990. From FY2000, developing
countries of Asian regions like Bangladesh, Pakistan, Nepal and Burma are now enjoying high growth
rate of cement consumption. This trend is expected to continue till FY2035.

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.

Industry Opportunities & Threats


Opportunities
Strong economy
Construction sector growth
Govt. support on local manufacturing
rather than importing
Growing urbanization

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
the market, internally developed data and other sources believed to be reliable. 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.
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
contents of the sources that are publicly available to prepare the Document. 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.
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

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