sement industries project

8/9/2019 sement industries project

1/34

Table of Contents

Introduction..........................................................................................................................2Review of growth.................................................................................................................4

A. Position at the time of Establishment ..........................................................................4

B. First Phase of Development: ....................................................................................... 4C. The Second Phase of Development: ............................................................................4D. Impact of Nationalization in 1972 .............................................................................. 5E. Performance up to the End of the 6th Plan ..................................................................5

Fiscal Performance 2008-09................................................................................................7Production Capacity.............................................................................................................9EXISTING CEMENT PLANTS IN PAKISTAN............................................................10Cement Industry-for the growth of Pakistan Economy....................................................11

Facts...................................................................................................................................12Demand pattern of cement.................................................................................................14Per capita consumption......................................................................................................15

Export.................................................................................................................................15Taxation.............................................................................................................................16Production cost...................................................................................................................17Cement prices.....................................................................................................................18Economic Factors...............................................................................................................19Policies and Regulation......................................................................................................20 Natural Resources..............................................................................................................21

F.Critical times for cement industry ..................................................................................22

Crisis in cement industry...................................................................................................26G. Production Cost .........................................................................................................26

H. Over-Supply Hangover ............................................................................................. 27I. Cement Consumption ................................................................................................. 27

Conclusion ........................................................................................................................30Recommendations..............................................................................................................31Freight Subsidy .................................................................................................................31Duty Drawback..................................................................................................................32Port Charges.......................................................................................................................32Long Term Measures.........................................................................................................33

Infrastructure at Ports ....................................................................................................33REFERENCES..................................................................................................................34

1


2/34

Introduction

The history of cement industry in Pakistan dates back to 1921 when the first

plant was established at Wah .In 1947, Pakistan had inherited 4 cement

plants with a total capacity of 0.5 million tons. Some expansion took place

in 1956-66 but could not keep pace with the economic development and the

country had to resort to imports of cement in 1976-77 and continued to do so

till 1994-95. The industry was privatized in 1990 which led to setting up of

new plants. Although an oligopoly market, there exists fierce competition

between members of the cartel today

The industry comprises of 29 firms (19 units in the north and 10 units in the

south), with the installed production capacity of 44.09 million tons. The

north with installed production capacity of 35.18 million tons (80 percent)

while the south with installed production capacity of 8.89 million tons (20

percent), compete for the domestic market of over 19 million tons. There are

four foreign companies, three armed forces companies and 16 private

companies listed in the stock exchanges. The industry is divided into two

broad regions, the northern region and the southern region. The northern

region has around 80 percent share in total cement dispatches while the units

based in the southern region contributes 20 percent to the annual cement

sales.

Cement industry is indeed a highly important segment of industrial sector

that plays a pivotal role in the socio-economic development. Since cement is

a specialized product, requiring sophisticated infrastructure and production

location. Mostly of the cement industries in Pakistan are located near/within

mountainous regions that are rich in clay, iron and mineral capacity. Cement

2


3/34

industries in Pakistan are currently operating at their maximum capacity due

to the boom in commercial and industrial construction within Pakistan.

The cement sector is contributing above Rs 30 billion to the national

exchequer in the form of taxes.

Cement industry is also serving the nation by providing job opportunities

and presently more than 150,000 persons are employed directly or indirectly

by the industry.

The industry had exported 7.716 million tons cement during the year 2007-

08 and had earned $450 million, while is expected to export 11.00 million

tons of cement during 2008-09 and earn approximately $700 million.

3


4/34

Review of growth

A. Position at the time of Establishment

The cement industry is the only industry which was liberated by Pakistan

because at the time of 4 cement factories in the country:

1. Dalmian Cement Factory-Karachi. 160,000 tones

2. Dalmian Cement Factory-Dandot. 500,000 independence there were tones

3. Associated Ltd.Cement Factory-Wah. 90,000 tones

4. Associated Ltd. Cement Factory-Rohri. 180,000 tones

Total production capacity of all the 4 factories = 4, 80,000 tones.

B. First Phase of Development:

The investment in the cement industry of Pakistan was initiated by the PIDC

with the setting up of 2 cement plants of which 1 was set up at Daud Khel.Its

name was Maple Leaf cement plant, with the annual production capacity of

300, 00 tones. The 2nd,Zeal Pak cement plant was set up at Hyderabad in

1965 which was later expanded in 3 stages and now has an installed capacity

of 108,000 tones.

C. The Second Phase of Development:

The second phase of development of cement industries started during the

sixties with the setting up of 3 cement factories in the private sector.

4


5/34

The demand for cement had been steadily increasing which induced the

private investors to further invest in this industry .Consequently, the annual

production capacity of cement which was 10,00,000 tones in 1959-60

increased to 2.7 million tones in 1969-70 ,registering an increase of 165%

during a period of 10 years.

D. Impact of Nationalization in 1972

In 1972, the units of cement industries were also nationalized along with

other industrial units consequently; the production of cement was limited

between 2.7 million tones to 3.1 million tonnes. All cement industries were

given under the control of a corporation named "Pak State Cement

Corporation. As a result cement had to be imported to meet the domestic

demand.

E. Performance up to the End of the 6th Plan

In 1978,the government undertook various development projects for the

reactivation of the private sector such as the completion of steel mills, port

qasim, construction of new dams, railway lines, expansion of highways,

development of the under developed regions. Those projects caused

unprecedented increase in the domestic demand for cement in the country

and we had to depend on large scale import of cement to meet this increaseddemand. Consequently, in 1981-82,900,000 tones of cement was imported,

while in 1982-83, 6, 20,000 tones was imported.

5


6/34

In view of the steadily increasing demand for cement, the private sector was

induced to invest in this industry. In addition to that, the production capacity

of cement units in the public sector was also expanded during the 5th and

6th five Year Plans. Consequently, by the end of the 6th plan, the total

production of cement increased from 3.40 million tones in 1977-78,to 6.7

million tones in 1986-87.

Installed Capacity

At present 23 cement units are operating in the country with a capacity of

8135 thousand tonnes .Out of these,12 units with a capacity of 5169

thousand tonnes are in the public sector and 11 units with a capacity of 2966

thousand tonnes are in the private sector.

Production(000 tones):

1989-90- 7488

1990-91 - 7762

1991-92 - 8095

(July-March) Provisional

6


7/34

Fiscal Performance 2008-09

Business Recorder reported that Pakistans cement exports witnessed a

healthy growth of 65%, to over 6 million tons during 7 months of the currentfiscal year mainly due to rise in international demand. The exports may

reach to 11 million tones and earn approx $ 700 million during 2008-09.

The statistics of All Pakistan Cement Manufacturers Association also

showed that cement exports had mounted to over 6 million tons in 7 months

as compared to 3.62 million tons of same period of last fiscal year, depicting

an increase of 2.38 million tons. Cement exports during January 2009 went

up by 30% to 0.81 million tons as compared to 0.623 million tons in January

2008.

However, slow construction activities in the country during the period badly

upset domestic sale of cement, which depicted decline of 15%, to 10.77

million tons as compared to 12.59 million tons of last fiscal year.

On Moms basis, local dispatches of cement during January 2009 showed a

decline of 8%, to 1.51 million tons from 1.65 million tons of January 2008.

Overall dispatches, including export and local sales, reached 16.77 million

tons during July to January of 2008-09 as against 16.20 million tons of last

fiscal year, depicting an increase of 3%.

By September 2009, after witnessing substantial growth in all three quartersof fiscal year (FY) 2008-09, cement sector concluded the fourth quarter with

a handsome growth of 1,492 percent on yearly basis, All Pakistan Cement

Manufacturers Associations report revealed on 29th September 2009.

7
http://www.dailytimes.com.pk/default.asp?page=20099%5C30%5Cstory_30-9-2009_pg5_14http://www.dailytimes.com.pk/default.asp?page=20099%5C30%5Cstory_30-9-2009_pg5_14


8/34

Higher retention prices (up 59 percent) and high rupee based export sales

amid rupee depreciation (20 percent) drove profits up north. However, this

growth is magnified, as FY2007-08 was an abnormally low profit period for

the sector.

Moreover, the performance is skewed towards large players with export

potential as profitable companies in both years posted increase of just 109

percent, said analyst at JS Research Atif Zafar.

He said that cumulative profitability of companies in FY09 stood at Rs 6.2

billion or $78.2 million as compared to Rs 386 million or $6.2 million

depicting a massive growth of 1,492 percent. Companies with profits in both

the years posted 109 percent earnings improvement.

Though total dispatches were down 2 percent, net sales grew by 55 percent

to Rs 101.4 billion or $1.3 billion on the back of higher net retention prices

(up 59 percent) and improved export based revenues. Cost of sales/tonne

also rose by 33 percent on yearly basis amid higher realized coal prices and

inflationary pressures, the analyst maintained.

8


9/34

Production Capacity

The cement manufacturers in 2007-08 added above eight million tons to the

capacity and the total production was expected to exceed 45 million tons by

the end of 2010. It may result in a In Pakistan, there are 29 cement

manufacturers that are playing a vital role in the building up the countrys

economy and contribution towards growth and prosperity. After 2002-3,

most of the cement manufacturers expanded their operations, and increased

production. This sector has invested about $1.5 billion in capacity

expansion over the last six years.

The operating capacity of cement in 1991 was 7 million tons, which

increased to become 18 million tons by 2005-06 and by end of 2007 rose to

above 37 million tones, and currently the production capacity is 44.07

million tones.

Cement production capacity in the north is 35.18 million tons (80 percent)

while in the south it is only 8.89 million tons (20 percent).

supply glut of seven million tons in 2009 and 2010.

Actual Cement Production

5 There are 28 cement plants in the country presently . 23 of them are in

private sector and 5 of them in public sector.

9


10/34

EXISTING CEMENT PLANTS IN PAKISTAN

Company Annual Production

(tones)

Expansion

(tones)

Year of

Completion

Total Production

(tones)

Army Welfare 945,000 - 1997 945,000

Anwarzaib Cement 56,000 - 1988 56,700

Attock Cement 693,000 - 1986 693,000

Best Way Cement 1,008,000 - 1997 1,008,000

Chakwal Cement 550,000 - 1998 550,000

Cherat Cement 760,000 - 1985 760,000

D.G.Khan Cement 660,000 1,039,000 1997 1,669,500Dadabhoy Cement 409,500 - - 409,500

Dandot Cement 504,000 - 1983 504,000

Essa Cement 150,000 - 1989 150,000

Fecto Cement 600,000 - 1989 600,000

Fauji Cement 990,000 - 1997 990,000

Gharibwal Cement 540,000 945,000 1997 1,485,000

Lasbella Cement 30,000 - - 30,000

Lucky Cement 1,260,000 - 1996 1,260,000

Mustehkam Cement 630,000 1,039,500 1997 1,699,500

Maple Leaf Cement 1,540,000 - 1940 1,540,000

Pakland Cement 504,000 504,000 1997 1,008,000

Pioneer Cement 660,000 100,000 1994 760,000

Pak.Slag Cement 180,000 150,000 1993 330,000

Saadi Cement 1,008,000 - 1997 1,008,000

Thatta Cement 330,000 - 1985 330,000Zeal Pak Cement 1,134,000 - 1956 1,134,000

Javedan Cement 600,000 - 1997 600,000

10


11/34

Cement Industry-for the growth of Pakistan Economy

. Growth of cement industry is rightly considered a barometer for economic

activity. Cement industry, which generally plays a significant role indevelopment and growth of economy, is running below 50 per cent of the

installed capacity due to visible decline not only in the construction industry

but overall economic activity in the country.

The decline in this important sector is reflected in the fact that capitalization

worth Rs60 billion in 1994 has currently come down to the level of Rs2.5

billion which is enough to say about the state of affairs in this sector.

Out of the 18 cement units operating in the country two being to public

sector while the rest in the public sector are running below 50 per cent of the

production capacity. The cement industry, which is an important part rather

basic part of the construction industry, provides fuel for creating job

opportunities to the millions in every country.

Badruddin Fakhri, Director Finance of Pioneer Cement Limited told PAGE,

That out of the total capacity of 16 million tons the demand has been

relegated to the level of 10 million tons a year. The remaining surplus

capacity going without use.

Badruddin suggested that in order to activate this important sector, the

government should include this sector in its development plans especially inroad construction. He pointed out that the recently announced project of

Northern Bypass in Karachi if allowed to be constructed by using cement

can be helpful in generating economic activity in this sector. Citing the

example of other countries where cement has replaced the bitumen in road

11


12/34

construction, Badruddin said that cemented roads not only help the cement

industry to grow but also help in reducing fuel consumption as much as 14

per cent costing around $250 million every year

.

Facts

Pakistan is rich in the deposits of limestone, clay and gypsum, which

constitute basic raw materials for manufacturing cement. Although a large

number of cement varieties are produced in different countries of the world,

Pakistan has been producing following types of cement.

1. Ordinary Portland cement

2. Portland B.F. Slag Cement

3. Sulphate Resisting Cement

4. White Cement.

12


13/34

Production capacity

At the time of Independence in 1947, Pakistan had inherited four cement

plants having total installed capacity of 0.5 million tons, all of which were

controlled from India. These plants were however closed after operating for

more than 50 years.

Consequently, Pakistan had to import cement during 1976 to 77. After the

change in government in 1977, private sector was allowed to establish

cement plants. As a result, seven projects having a capacity of 2.54 million

tons were installed in private sector and simultaneously, State Cement

Corporation of Pakistan also put four projects having a capacity of 1.6

million tons, enhancing the total capacity of the country to over 8.5 million

tons by the end of 1990. Cement Production in 1997-98 is estimated at

9.799 million tones as compared to 9.536 million tones in the preceding year

. The present installed capacity of 28 cement plants is 17,312 million tones .

Total production at 10,384 million tones in 1998-99.

Year No. of units Production %change Capacity Utilization

1989-90 23 7488 5.0 92,000

1990-91 22 7762 5.0 95,300

1991-92 22 8321 7.2 96,200

1992-93 20 8558 2.7 98,900

1993-94 20 8100 (-)5.3 99,800

1994-95 20 7913 (-)23.0 97,500

1995-96 20 9567 20.9 117,900

13


14/34

1996-97 20 9536 - 117,500

1997-98 23 9799 2.7 107,600

Demand pattern of cement

During the decade ending in 1970 average demand of cement increased @

7.2 per cent per annum to 1.97 million tons. During the decade ending in

1980 growth in demand declined to 6.8 per cent per annum, whereas during

the decade ending in 1990 demand grew @ 7 per cent per annum to 7.47

million tons. Based on this trend, it was projected that demand will grow to

14.73 million tons by the year 2000. Unfortunately, due to political

instability the demand of cement declined from historical growth of 7 per

cent to 2.8 per cent during nineties and as a result demand could only touch

9.91 million tons by the close of year 2000. The capacity on the other hand

had gone up to 16 million tons by the end of 2000, leaving a huge idle

capacity of over 6 million tons

.

14


15/34

Per capita consumption

Cement consumption is considered to be a representative denominator of the

state of development of any country. Per capacity cement consumption in

Pakistan works out to 72 kg per head per annum which is one of the lowest

in the world.

A comparative view of per capita consumption

Pakistan 72, India 89, Sri Lanka 105, Philippines 220, Mexico 251, Iran 274,

Syria 369, China 410, Turkey 512, Thailand 600, Malaysia 870 and Taiwan

1004.

This state of affairs strongly suggests that Pakistan have to catch up in

its development plans by reallocating its resources to infrastructure

development, housing and industrialization. Furthermore, switching over to

concrete roads can also enhance cement consumption, which have much

roads. Studies concrete roads save 14 per cent on fuel consumption. Savings

on fuel consumption will run into billions of rupees annually.

Export

Pakistan with about 6 million tons surplus capacity is surrounded by a

number of countries which have to import cement, either because they do

not have limestone reserves or are short in limestone deposits.Following is the annual demand of cement importing countries:

Bangladesh: 5 million tons

Sri Lanka: 3 million tons

Singapore: 5 million tons

15


16/34

Egypt: 4 million tons

Myanmar: 1 million tons

Vietnam: 1 million tons

Malaysia: 2 million tons

Pakistan has historically been exporting cement whenever it had surplus

capacity. Pakistan has exported considerable amount of cement during

decades of sixties and seventies besides meeting the entire need of the then

eastern part of the country, which are now Bangladesh.

Currently, the export of cement has almost come to a standstill mainly

because of high cost of production due to high rate of taxation and freight

charges. Pakistan can still export cement provided international prices are

viable for Pakistan cement companies. Unfortunately, cost of production in

Pakistan is higher than competing countries like Indonesia, China, Korea

and India due to higher cost of production. International prices of cement

have come down due to over capacity of about twenty million tons cement

in the Asia-Pacific region. With higher cost of production, Pakistan cannot

compete at these prices. Under the circumstances, cement export can only be

viable if cement companies are allowed export rebate to cover deficit in

variable-cost and meet the export expenses and some margin of to cover

fixed overheads.

Taxation

Although cement constitutes as one of the basic necessities for shelter, yet in

Pakistan taxation of cement is the highest in the region. India, excise duty is

16


17/34

being charged @ Rs350 per ton whereas in Pakistan it is charged @ Rs1000

per ton. Sales tax on cement in India is 10 per cent. Whereas in Pakistan it is

15 per cent.

Overall taxation on cement in Pakistan is 37 per cent, India 18 per cent,

Indonesia 10 per cent, Philippines 10 per cent, Iran Nil; Egypt 10 per cent

while it is 7 per cent in Thailand.

Production cost

Energy constitutes more than 50 per cent cost of production of cement. Until

fifties cement industry was using coal as fuel for clinkering of raw material.

After discovery of natural gas, all cement plants were converted into gas. In

early eighties, the then government decided to preserve gas for fertilizer and

domestic consumption. All the cement plants were advised to switch over to

furnace oil. Uptil now almost all the plants have been operating on furnace

oil except for 2/3 plants who succeed in getting gas for few months in a year.

Gas allowed to few plants in the recent past is being strongly contested by

other plants. Since furnace oil prices have taken a quantum jump during

recent years which have gone from Rs5000 to even 11500 per ton has

resulted in increasing the cost of production almost to double.

The increased level of furnace oil prices strongly suggests that Pakistani

cement industry should switch over to coal firing system. Almost 90 per cent

cement plants world over use coal for clinkering. Pollution is no more a

problem due to advance technologies arresting gas emissions. Cost of coal

firing is estimated to be 2/3rd of the cost of furnace oil, if imported and local

17


18/34

coal is used in the ratio of 50 per cent. However if huge coal deposits in Thar

and Sondha, which have lower sulfur content, are developed, saving in fuel

cost will be more than 50 per cent. The government will also be saving

foreign exchange if the industry switches over to coal.

Another factor enhancing cost of production is the electricity prices, which

is again the highest in Pakistan in the region. Exorbitant increase in

electricity charges during last couple of years not only resulting tremendous

increase in cost of production in every manufacturing sector but is

responsible for arresting the economic growth of the country.

Cement prices

After privatization in 1991-92, cement prices escalated exorbitantly from

Rs2, 055 per ton in 1992 to Rs3, 300 per ton in 1994, a rise of over 60 per

cent within a span of two years. Thereafter efforts were made to pass on the

impact of escalation in prices of furnace oil, electricity and other increases in

cost of production to the prices of cement, but due to fierce competition

amongst cement manufacturers prices never remained stabilized. The price

although went as high as Rs4,400 per ton in the year 2000 but started

declining since September 1999 when sales tax was levied which triggered a

price war amongst all the cement companies. At present the cement price is

between Rs220 to Rs230 per bag and is likely go down further due to sharp

decline in demand. Another factor, which may bring down cement prices, is

the trend of switching to coal fired system for which the government has

announced some better incentives for cement manufacturers.

18


19/34

Economic Factors

Market for Cement in Pakistan exists in two main dimensions: 1. product

type 2. And 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

doesnt 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 Daud Khel will raise its price to match DG

cements. 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

oversupply 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 massive20% 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 freightexpenses.tent/c050

19


20/34

Policies and Regulation

The policy of the Government is to keep a balance between rapid economic

development, on the one hand, and social justice and consumers protection,

on the other. There is a traditional conflict between these two aims. It is,

therefore, necessary to regulate trade, commerce or industry in the interest of

free competition therein. The Ordinance was promulgated to provide for

measures against un-due concentration of economic power, growth of un-

reasonable monopoly power and un-reasonably restrictive trade practices.

Thus cement industry too is monitored and answerable to rules and

regulations developed by the monopoly control authority of Pakistan. The

government is considering allowing further concessions and additional

incentives for cement export, with a view to increase overall export volume.

These measures will immensely help in promoting and protecting high

investments made in cement sector in recent years. In the wake of its huge

surplus production as a result of massive capacity expansion undertaken it

rather seems imperative for Pakistani cement industry, on one hand, to

sustain existing export markets and, on the other, explore new markets.

Export opportunities: 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

20


21/34

Restriction of Exports: Restriction of export of cement is deterring the full

potential of this sector. Keeping in view the huge cement production

capacity coming online in the next financial year, it is hoped that the

government will reconsider its cement policy on an urgent basis and prevent

the industry from going into a crisis owing to over supply.

Natural Resources

Manpower The direct labor that works on one shift is on average 70. There

are about three shifts in a day. The labors are provided accommodation in

the same place. Land The land that has the factory and used for

accommodation is owned by the company. There is enough space to

accommodate new plants if the need arises. Energy Initially the company

was relying on WAPDA for power supply but now the company has its own

electricity generation plant that provides up to 50% of the total requirements.

The services of the plant owned by the company is

21


22/34

Pakistan environment affect on cement industry

F.Critical times for cement industry

As Pakistan tries to come to terms with the situation arising after the killing

of Benazir Bhutto, nervousness in business community has increased

regarding the future in a country struggling to revert to democracy after of

eight years of military-led government. No one is expecting a major

breakthrough or a turnaround in the industry in 2008. There are too many

ifs clouding the prospects of industry that failed to fully capitalise on the

surge in local demand, in a period of economic expansion and growth.

There might be some company level balancing and modernizing in certain

sectors but chances of anything big happening in the year ahead are remote

also because of political turmoil and readjustment, during which,

traditionally investment plans are put on hold, an informed professional

who interacts with trade bodies told Dawn from Islamabad. There is huge

scope for exports of cement to India that is going to give a boost to cement

makers. However, according to people in know of things instead of investing

in creating new capacity, the big wigs in the sector are currently focused on

marketing.

The restraining factors that inhibited the growth in industry are believed to

be both: internal and external, physical and temperamental. The industry will

have to break free of the old mindset and adopt a futuristic approach to face

22


23/34

the competition at local as well as international levels. The government will

also need to shun short-term ad hoc measures adopted for political

expediency in favour of a long- term sustainable industrialization strategy

that addresses real issues such as ensuring supply of quality cotton for

textile, flow of credit to small and medium sized industry, etc.

Industry performed well in 2005 but the pace of growth lost momentum

and in 2006 and 2007 its performance was below the official target. Though

the regional environment is not hostile, it would take the next government

some time even with best of intentions to jump start industrialization on a

significant scale Chaudhry Mhd Saeed, ex-president Federation of Pakistan

Chamber of Commerce and Industry commented from Mirpur, Kashmir.

Optimism, if any, was tempered by anxiety over the sustainability of growth

because of tight monetary policy, high inflation, current account deficit and

rising trade deficit. Amongst entrepreneurs, there were also concerns about

the policies of the next democratic government that assumes power after

populist measures to appease their supporters, increasing pressure on current

accounts forcing the country to go back to IMF for budgetary support.

The credit squeeze has started to impact the investment plans of

manufacturing sector. The weakening of dollar will lend some support to

exporters especially because of appreciation of Indian and Chinese

currencies against the greenback. The impact of high international oil prices

(90 per cent of the oil needs are imported), could impact the countrys

reserves. It will limit the capability of the government to provide public

subsidies to cushion the rises in food and fuel prices.

23


24/34

Majyd Aziz, a former president of the Karachi Chamber of Commerce and

Industry, felt that the problems faced by the industry cannot be wished away

or disappear quickly as a political government will not be equipped with a

magic wand.

They will need to take hard decisions and opt for a well thought out long-

term strategy. This would take time and it would be unrealistic to expect

anything before June next when the budget will be announced, he said. He,

however, expected major foreign investment pouring in the construction

sector once the political situation stabilises. If his expectation is materialized

it would prop up 36 allied industries besides creating job opportunities for

people linked to this sector. He saw good performance in pharmaceutical

and cement sectors but a promising future for agro-based industries in years

ahead.

Shafqat Illahi, President All Pakistan Textile Mills Association APTMA, the

most influential business lobby, was cautiously optimistic. He, however, felt

that there is lack of preparedness on the part of industry to take advantage of

the government supported increase in consumer demand.

He emphasized the importance of attaining critical mass through

amalgamation and consolidation to face the challenge thrown up by intense

competition. He felt that government should create conducive environment

for industrial growth and for the progress and sustainability of textile sector

in particular.

24


25/34

Recently Dr Shamshad Akhtar Governor State Bank of Pakistan speaking

during her visit to FPCCI said: 2000 onwards, by and large, the world

economy enjoyed a fairly benign economic environment ... Among the key

factor impacting global economy is the financial market turmoil.

With this backdrop, I propose to provide briefly Pakistans economic

update attempting to lay down some emerging trends for FY08 which

require stronger vigilance at economic policy-making level and industry and

private sector to be more responsive. In general, it has to be underscored that

despite domestic and international events, Pakistan economic prospects

remain strong.

She said, July-October 2007 data for industrial production, while

preliminary, reflects mixed picture. Production growth in construction

related industries appear reasonable including cement, wood, paints and

varnish units, followed by fertilizer, pharmaceuticals, petroleum refining and

few metal and engineering goods. In these sectors, Pakistan can reduce rate

of import dependency (such as petroleum refining where production capacity

is 13.2 million tons relative to consumption which is 18 million tons)

through capacity augmentation and even consider exploiting export

markets.

She suggested that industry and the Government need to take measures to

improve competitiveness of domestic goods. Ensuring quality through

innovation, skill development and technological up-gradation, reducing

costs through scale, diversifying product-line in line with the market

25


26/34

demand, and achieving self-sufficiency in raw materials etc. are some of the

areas where entrepreneurs need to concentrate.

Dr Afra Sajjad, head of education and policy development, ACCA, Pakistan

sent in her comment via mail: Like the rest of Pakistan, 2008 is a crucial

year for the industry. Its survival depends upon a government that

appreciates that the sustainable development depends upon industry

generating employment, attracting foreign investment, increasing

productivity, exploring new markets for exports and most importantly,

generating sustainable profits.

Crisis in cement industry

G. Production Cost

Besides fall in prices of cement, escalation in prices of inputs namelyfurnace oil, electricity and paper bags have played havoc to the cement

industry.

Furnace Oil: Price of furnace oil increased from Rs.2843 per ton in

November 1994 to Rs.26297 per ton in February 1997 within a period of

21/4 years registering a rise of 119% as depicted in Chart A.

Electricity: Electricity tariff for cement industry has gone up by 71% during

the last three years as shown in Chart 'B'.

Paper Bags: Due to taxes on import of paper & levy of Excise Duty on paper

bags and massive devaluation of Pak Rupee during last three years, price of

26


27/34

paper bags has gone up from Rs.7 per bag in November 1994 to Rs.12.92

per bag in November '97 registering a rise of 85%, as reflected in Chart 'C'.

Cumulative effect of above escalation on of cement works out to well over

Rs.500/-per ton, which could not be passed to the consumers due to stiff

competition amongst cement manufacturers.

H. Over-Supply Hangover

The above scenario presents the current status of cement industry in the

country. New plants appearing in Table-II are expected to commence

commercial production in the near future raising the capacity of

manufacturing cement of Northern region of the country by 4 million tones

per annum by the end of current financial year. Old and wet process plants

on becoming unviable due to increase in energy cost and expected to close

down. Their capacity is however so small that their closure will not make

much difference. The oversupply is expected to be of the order of about 5

million tones, whereas production of wet process plants is not more than one

million tones.

I. Cement Consumption

Per capita cement consumption is one of the denominators of thedevelopment of any country. Per Capita Consumption at 70 kegs. In

Pakistan is one of the lowest in the world. According to a study conducted

by Q-Consult, 42 countries of the world having similar per capita income as

that of Pakistan have DOUBLE per capita cement consumption than that of

27


28/34

Pakistan. This is indicative of the fact that in Pakistan resource allocation of

the Government is not development oriented. This problem needs to be

addressed by the Planning Division in Islamabad.

Besides above, another area where massive amount of cement can be

consumed is construction of motorways. New motorways should be made of

cement which has 3/5 times higher life than stone-bitumen roads. Planning

Division of the Government and the All Pakistan Cement Manufacturers'

Association should join hands to work on this idea because surplus capacity

to a great extent can be absorbed in road construction. Like Indonesia and

Malaysia highways/motorways of 50 km each can be constructed on BOOT

basis.

CANAL refurbishment in Punjab has been pending for a very long time due

to lack of funds, but devastating effect of depleting conditions of canals have

been adversely affecting the yield of our agricultural output. If this job is

undertaken on priority, a good amount of cement can be consumed in this

area as well. Again APCMA should pursue this matter with the concerned

Ministries of the Government, so that additional areas of cement

consumption could be explored. The additional consumption of 5 million

tons of cement will not only increase the existing revenue of the

Government by over Rs.7 billion per annum, but will also greatly help in

bringing the cement industry out of its existing crisis.

28


29/34

Table-I

Cement Share Prices at Karachi Stock Exchange

Market Price of Share of Rs.10/-

March November (%age)

1994 1997 Decline

Cherat 172.00 17.00 90.1

Dadabhoy 81.25 6.50 92.0

Dandot 185.00 3.50 98.1

D.G. Khan 107.00 10.10 90.6

Essa 109.00 9.50 91.3

Fecto 88.5 8.75 90.1

Javedan 104.00 15.90 84.7

Pakland 154.00 7.5 95.3

Pioneer 63.00 6.00 90.5

Average: 118.17 9.40 92%

29


30/34

Conclusion

In our conclusion the importance of productivity is imminent and is the need

of the hour. Real gains in productivity are important then simply measuring

success in meeting objectives.

Improvements in productivity have a significant impact on lives

whether the change occurs at the national level, within the given

industry or a company or even at the individual level.

Changes in productivity within an industry or at the company level are

closely related to success and survival.

The profit margins realized by an industry or a specific company are

related to its ability to make productivity gains ahead of the

competition. Industries where competition helps to propel

improvement often experience greater growth.

Companies that fail to keep in pace will fail. In either case, all

stakeholders are directly impacted.

Now keeping in view the analysis of Maple Leaf with respect to its

productivity of labor, capital and growth, we have concluded that the

current expansion of its capacity and induction of newer plant with

capacity of 6700tons might have caused short term costs.

Now this time it would provide higher returns in the form of sales and

revenue earned. Secondly, the current management is actively

resorting to international set of quality standards so that to meet the

upcoming competition with regards to WTO. So the productivity and

efficiency with regards to effectiveness of the plant is satisfactory.

30


31/34

Recommendations

Cement manufacturing in Pakistan was never as buoyant as it has

become in the preceding couple of years. Though an oligopoly, there

exists immense competition between members of the cartel. Critical

success factors of the industry have unanimously become utilization

of idle production capacity, additions to which have started sending

threatening signals to market participants.

Cement manufacturers have undertaken counter offensive strategies

by introducing capacity enhancements of their own to capture extra

market share and achieve economies of scale from production

activities.

Short Term Measures

o Freight Subsidy

The current Trade Policy, 25% freight subsidy is provided to eligible

products as defined in the subject order. A negative list of countries and of

products has also been specified in order. Cement products classified under

H.S. Code 25.23 in Pakistan Customs Tariff have been placed on the

negative list. In view of the value added nature of Lucky and cement, these

merit being added to the list of Developmental Products.

31


32/34

Duty Drawback

The present export rebate on cement of Rs. 25 per ton with no draw back for

export of Lucky has led to cement export by sea to come to a grinding halt.To make the exports viable and increase the capacity utilization in the

country, it is proposed that present export rebate on cement of Rs. 25 per ton

be increased to:

o For Lucky cement Rs. 142.48 per ton and Rs. 93.32 per ton for

clinker. Calculation attached annex-A

o For white cement Rs. 167.02 per ton and Rs. 93.32 per ton for clinker.

Calculation attached annex-B

Neighboring countries like Bangladesh, Myanmar, Sri Lanka, and some of

the Gulf States, are regularly importing cement and if duty draw back rates

are fixed as stated above then, 4 to 5 million tons of cement / clinker can be

exported every year.

Port Charges

Port charges in Pakistan are very high as compared with other countries.

Detail of these charges is as under:

Charges Pakistan India Qatar

(US $) (US $) (US $)

Port dues 0.34 0.09 0.12Pilot age 0.30 0.16 0.11

32


33/34

We urge you to kindly look into the above and take necessary measures to

reduce the charges in Pakistan to bring them in line with other countries.

Long Term Measures

o Infrastructure at Ports

APCMA has the capacity to exports 4 to 5 million tones of clinker and

cement per annum but the Ports do not have the storage and loading

facilities for export of bulk cement and clinker. The Trade Policy 2006-2007

has also highlighted the export of surplus cement and clinker through a

separate terminal. Since the operation of this separate terminal would take atleast 2 to 3 years some interim arrangements would greatly facilitate the

export of cement and clinker in the meantime. It is proposed that 5 to 6 acres

of land for the setting up of fabricated storage silos with storage capacity of

30,000 tones of cement be provided within the Port Qasim vicinity so that

we can store cement in the idle time and efficiently load the ships upon its

arrival within the shortest possible time at a loading rate of 8 to 10 thousand

tones per day being offered by other competitors including India.

33


34/34

REFERENCES

Date 11-5-2010 time (11:15pm)

http://www.paktechsearch.com/suppliers.asp

Date 19-5-2010

http://www.google.com.pk/search?

hl=en&source=hp&q=lucky+cement+in+pakistan+history&meta=&aq=f&a

qi=&aql=&oq=&gs_rfai=

http://www.pioneercement.com/social-responsibility.html

http://www.descon.com/Sectors/Cement/faujiCementPlant.aspx

http://www.kmlg.com/kmlg/cement_history.php

EDB (2007c), Growth Strategy for the Engineering Industry to Achieve

Rapid Industrialization and Economic Growth. Viewed at

http://www.engineering pakistan.com/EngPak1/vision.php

[11 October 2007].
http://www.paktechsearch.com/suppliers.asphttp://www.google.com.pk/search?hl=en&source=hp&q=lucky+cement+in+pakistan+history&meta=&aq=f&aqi=&aql=&oq=&gs_rfaihttp://www.google.com.pk/search?hl=en&source=hp&q=lucky+cement+in+pakistan+history&meta=&aq=f&aqi=&aql=&oq=&gs_rfaihttp://www.google.com.pk/search?hl=en&source=hp&q=lucky+cement+in+pakistan+history&meta=&aq=f&aqi=&aql=&oq=&gs_rfaihttp://www.pioneercement.com/social-responsibility.htmlhttp://www.descon.com/Sectors/Cement/faujiCementPlant.aspxhttp://www.kmlg.com/kmlg/cement_history.phphttp://www.paktechsearch.com/suppliers.asphttp://www.google.com.pk/search?hl=en&source=hp&q=lucky+cement+in+pakistan+history&meta=&aq=f&aqi=&aql=&oq=&gs_rfaihttp://www.google.com.pk/search?hl=en&source=hp&q=lucky+cement+in+pakistan+history&meta=&aq=f&aqi=&aql=&oq=&gs_rfaihttp://www.google.com.pk/search?hl=en&source=hp&q=lucky+cement+in+pakistan+history&meta=&aq=f&aqi=&aql=&oq=&gs_rfaihttp://www.pioneercement.com/social-responsibility.htmlhttp://www.descon.com/Sectors/Cement/faujiCementPlant.aspxhttp://www.kmlg.com/kmlg/cement_history.php

sement industries project

Documents