There are signs of recovery of cement industry, which had generally recorded stagnant sales for the past four years or so, resulting in huge financial losses. The industry suffered a net loss of Rs 337 million in the first half of 2010-11 but earned a net profit of Rs 4,300 million in the first half of 2011-12. According to latest reports, total sales during fiscal year 2011-12 increased to a record level of 32.515 million tons, showing an increase of 8.84% in domestic sales and overall 3.45% increase compared to previous year as exports declined by 9.12%.
This trend of domestic sales is expected to remain in momentum in future, given the present conditions. The 2012-13 federal budget has provided more incentives and relief to cement industry such as excise duty has been slashed by Rs 200 per ton and the GST by one percent. These measures will encourage construction activities in the country.
Cement demand in any country is inextricably linked to the growth in GDP. Pakistan's 3.70 GDP in 2011-12 was lowest in the region but it is projected as 4.30 in the current financial year, following some strong prospects of economic revival. Major driver for cement consumption is infrastructure development and house-building projects. There has been an allocation of Rs 873 billion under the Public Sector Development Programme (PSDP). A number of mega water and power sector projects are in pipeline, including Diamer Bhasha multipurpose project and two additional Chashma Nuclear Power projects, while almost 12 other large projects are planned for initiation during this financial year. Construction of a project of the size of Diamer Bhasha is estimated to create an additional cement demand in the range of 8 to 9 million tons. PSDP allocation to Wapda is to the level of Rs 76.85 billion.
There are 56 housing and works projects covered under the PSDP, besides the ongoing reconstruction and rehabilitation activities nation-wide that would be accelerated, whereas National Highway Authority will get Rs 50.73 billion. Demand of cement is thus projected to grow by more than 20% this year and in subsequent years. Currently, per capita consumption of cement in Pakistan is 131-kg, one of the lowest even among developing countries, while world average is 273-kg. To ensure future economic growth, Pakistan will need to invest considerably in its infrastructure development, despite the economic challenges it faces.
Cement industry comprises 24 cement plants with an annual installed capacity of producing 44.22 million tons of cement. Key players of the industry are Lucky Cement with combined installed capacity of 7.712 million tons of cement annually, Bestway Cement having a combined capacity of 5.914 million tons, DG Khan Cement of 4.220 million tons, Fauji Cement of 3.433 million tons, Maple Leaf Cement of 3.370 million tons and Askari Cement of 2.675 million tons. These six groups of companies represent 62% of total installed capacity for cement production in the country. While these groups have been making substantial profits, small cement producers continue to struggle to recover their operating costs.
The industry suffers rapid increases in input costs, unsustainable prices of energy that constitutes more than half of production cost, and rising transportation cost. Yet, industry's performance during past years in terms of capacity utilisation remained significantly high - more than 70% of installed capacity. The industry has been using imported coal as fuel for production of cement and is now looking for least expensive fuel alternatives. Investment in Refuse Derived Fuel (RDF) provides the solution, which is a modern technology using the municipal waste to produce energy. Fauji Cement has successfully adopted this technology, blending RDF with coal, and others are currently implementing similar projects. Also, projects of power generation from waste heat recovery have been undertaken by the cement industry.
Pakistan has recently emerged as a significant regional exporter of cement, having exported 10.752 million tons of cement in 2008-09. Though exports declined later, registering export of 8.568 million tons cement in 2011-12, there exists a promising potential in export markets. Renewed development trends are shown in the Middle East and East African markets. Projected sales to India will grow. Bangladesh and Sri Lanka are steady markets for export of clinker. As political and security situation improves in Afghanistan and Iraq, demand of cement will increase. Exploring new markets, like Egypt and Myanmar, will be worthwhile. CEMTECH Middle East and Africa 2012 and CEMTECH Asia 2012 held in February and June this year, respectively, discussed global market trends, forecasts, and competitive dynamics, and analysed key developments in world cement. These Conferences have identified the emerging opportunities for international trade of cement.
The cement sector had announced in 2007 the plans to increase installed capacity to total 50.4 million tons by 2010 and 53.4 million tons by 2011. The plans however did not materialise fully, and only 44.22 million tons production capacity has been achieved till now. In view of strong demand projections in future, it is imperative for the industry to go now for further capacity expansion, corresponding to latest advances in cement technology. From sustainability perspective, small producers need to reorganise through optimising operations, creating new capacities, improving plant performance, and adopting cost saving methods. Size of plant and technology are of great significance, which determines economies of scale, energy efficiency and simple operation & maintenance, thus keeping the overall cost structure competitive.
Some facts about world cement industry are interesting and revealing. Dangote Cement's Obajana, Abuja (Nigeria) plant is the single largest facility in Africa with present capacity of 10.25 million tons of cement, whereas another 3.0 million tons capacity is planned to be added by 2015. Holcim (USA) has commissioned in November 2009 its green-field cement producing plant in Ste. Genevieve County, Missouri, which is one of the world's largest cement plants. Costing $905 million, this is also the largest single cement/clinker production line in the world, of 12,000 tons of clinker per day capacity, equivalent to over 4 million tons of cement annually. Turkey's Nuh Cimento of 4.1 million tons of clinker per year capacity has the largest cement grinding mill in the world that produces 300 tons of cement per hour. Lafarge's Alpena, Michigan (USA) cement plant operating since 1908, now of 2.6 million tons of annual capacity, is perhaps the longest continuously operating cement plant in the world.
