Industry:-

Cement Industry of Pakistan

Introduction:-

Cement industry is indeed a highly important segment of industrial

sector that plays a pivotal role in the socio-economic development.
Though the cement industry in Pakistan has witnessed its lows and
highs in recent past, it has recovered during the last couple of years.

Market for cement in Pakistan exists in two dimensions:

1. Product type

2. Geographic area.

Product type:-

Since cement is a specialized product, requiring sophisticated

infrastructure and production location. So, most of the cement
industries in Pakistan are located near/within mountainous regions that
are rich in clay, iron and mineral capacity. Structure of Cement industry
in Pakistan is as such that there is not much substitutability to buyers.
Which shows that the Cross elasticity of demand is negligible.
Geographical Area:-

The other factor i.e. geographic location also doesn’t affects a lot
considering the flexibility of demand. Example can be taken from the
fact that if DG cement in DG KHAN raises its price and MAPLE LEAF
CEMENT in DaudKhel will raise its price to match DG cement’s. This is
due to cartel of all of the cement manufacturers in Pakistan. Thus the
customer has no choice at all to switch between two brands of cement.
As the cement market is moving from a virtual 'sellers' market' to an
over-supply situation, it is expected that when prices stagnate and
profitability becomes a function of volume and economies of scale,
location advantage and proximity to markets will become extremely
important factors. At present the freight charges are a massive 20% of
the retail prices. The plants located very close to each other and
tapping the same market will have to expand their markets which will
increase their freight expenses. Dandot, Pioneer, Maple Leaf and
Garibwal are all located within a radius of 100 kilometers and are
selling bulk of their production in the same areas and will thus face
serious competition from each other.

Performance:-

The demand of Pakistani cement is expected to continue to grow at the

rate of 20 per cent for about four years to come. It may then follow
traditional growth rate of seven per cent per year. Announcement of
major dams will dramatically increase this demand. Deregulation after
accession of Pakistan to WTO is expected to open the window of
competition from cheaper markets. There may be no tariff after this
deregulation on import of cement allowing its entry into Pakistan from
cheaper market at lower rate. Cement from cheaper markets may also
block Pakistan’s export of cement to its neighboring countries. Global
market has vigorously taken up the advantage of economy of scales
and multinational giants now control more than 40 per cent of world
production—(China not included). The recent acquisition of Chakwal
Cement by an Egyptian giant, Orascom may be a beginning of such an
entry in Pakistan by multinationals. New avenues for export of cement
are opening up for the indigenous industry as Sri Lanka has recently
shown interest to import 30,000 tons cement from Pakistan every
month. If the industry is able for avail the opportunity offered, it may
secure a significant share of Sri Lanka market by supplying 360,000 tons
of cement annually.

Major Companies:-

In Pakistan there are 27 cement manufacturers that are playing a vital

role in the build up of country’s economy and contribution towards
growth and prosperity. For the calculation of Herfindahl index we have
chosen 5 dominant industries of Pakistan,on the basis of their
production capacity. The market share of these firms is as follows:

• Askari cement (NZP) 7.6%

• DG cement 9.8%

• Lucky cement 12.7%

• Maple leaf 7.1%

• Pioneer cement 5.5%

Earthquack Rehabiliation to boost demand:-

After the earthquake of October 8th, the demand for cement rose
tenfold due to the rehabilitation and developmental programs. The
conditions that constitute this growth due to earthquake are as follows:

• Earthquake losses are estimated at USD 5.2bn

• Reconstruction work will boost construction material demand

• Some portion of development expenditures will be allocated to this

project

• Reconstruction work is expected to generate cement demand of 4mn

tons over next 3-4 years

• Positive impact on demand will be much more evident from 2HFY07

onwards.

• Cement manufacturers in northern zone will be the main

beneficiaries of this demand growth
Demand Generation of large dams:-

The demand for cement will also increase due to following

observations:

• Construction of four large dams will generate demand of 3.7mn tons

as construction activities start

• Our estimate does not include demand generation from Skardu-

Katzarah dam as its feasibility study in not yet completed.

• Extent of demand generation will depend on size of dam, type of

dam, and extent of relocation/resettlement activities required.

• Bhasha dam will generate maximum demand as it is RCC concrete

dam whereas other dams being Earthfill/Rockfill dams will require less
cement for their construction.

• Resettlement activities for Kalabagh dam will generate maximum

demand as it is located in a highly populated area.
Overview:-

During the fiscal year under review, the economy lost its growth
momentum owing to a number of adverse developments including
substantial contraction in the industrial sector. Real GDP growth rate of
a meager 2% was attained, the lowest in last eight years. This
performance should be taken against backdrop of major disruptions of
an extraordinary nature like political uncer tainty, intensification of war
on terror, acute energy shor tage and extremely high inflation by
Pakistan’s standards. Massive adjustments had to be taken to attain
stability in a highly disruptive year of exceptionally acute
macroeconomic imbalances and demand compression both on
domestic and external fronts. For tunately, the agriculture sector
produced stellar growth of 4.7% as compared to 1.1% last year against
target of 3.5 percent for the year. The total investment has declined
from 22.5 percent of GDP in 2006-07 to 19.7 percent of GDP in 2008-09
with the axe falling on development expenditure. The energy shor tages
dragged the performance of the economy especially in large scale
manufacturing. As economic growth continued to decline during last
three years, industrial and construction sectors also contracted due to
the domestic slow down and energy shor tages. The global recession
continued to adversely impact exports.

Pakistan’s cement factories continue to make significant progress in

external markets and 11.3 million tons of cement were expor ted
during last fiscal year. Sustained growth in recent years in the cement
industry is an outcome of increase in production capacity and
exploitation of expor t markets. The Pakistani cement industry posted
overall growth rate of 2% during the year under review. However,
expor ts showed encouraging increase of 47% with sales volume
reaching 11.381 million tons against last year’s volume of 7.716 million
tons. Demand in the local market showed negative growth of 14% due
to adverse economic situation in the country. Had the expor t markets
not been developed, the industry would be in dire straits.