Analysis of Pakistani

Cement Industry

Group Members:
Muhammad Anum Hasan
Nooruddin Muzzaffar
Zohaib Ali Khan

IBA :BBA 4 – Yr 2005

 GLOBAL CEMENT TRENDS
• Shortage of cement world wide
• 10-12% of the GDP of many counties worldwide
• World spending on construction approximately
equals $ 3.2 trillion in 1998.
• Economic uplift of developed countries stands
on the infrastructure provided by the cement
industry.
• Newly industrialized nations and developing like
Turkey & Indonesia have used this industry to
their advantage.
 TYPES OF CEMENT

• Ordinary Portland cement (OPC)

• Slag Cement
• Super sulfate resisting cement (SSRC)
• Sulfate resisting cement (SRC)
TYPES OF MANUFACTURING
PROCESSES

• Wet processes
• Semi wet process
• Dry process
 MANUFACTURING CYCLE
• The quarry
 MANUFACTURING CYCLE
• Raw materials
1. Limestone
2. Clay/ Shale
3. Gypsum
 MANUFACTURING CYCLE
• Raw milling
 MANUFACTURING CYCLE
• Pre-heater and Pre-claimer
 MANUFACTURING CYCLE
• The kiln

Click picture for video on

milling
 MANUFACTURING CYCLE
• The Complete Process
 MANUFACTURING CYCLE
• Packaging and distribution

Click picture for video on

distribution of cement
HISTORICAL DEVELOPMENT
• Number of plants
Number of Cement plants in history of
Pakistan
N u m b e r o f p l a n ts

30

25

20

15

10

0
1947 1948-58 1958-68 1971-77 1977-88
Years
 Percentage
Growth rate

-5
0
5
10
15
20
25

-10
1990-1991

1991-1992

1992-1993

1993-1994
• Historical growth rate

1994-1995

1995-1996

Years
1999-2000
Industry of Pakistan

2000-2001

2001-2002
Historical Growth rate of Cement

2002-2003

2003-2004
HISTORICAL DEVELOPMENT
 SIZE AND TRENDS
• Total plants are 24
• Out of 24, 22 are operative
• 17 are listed on KSE
• Capacity utilization 85-100% june30,2004
(EBR-Dawn)
• Fuel conversion
• Capacity expansion of 13 million tons
going online from FY05-FY09
 SIZE AND TRENDS
• Demand and supply gap restricts profit
growth
 SIZE AND TRENDS
• Sustainability of demand growth
 SIZE AND TRENDS
• Capacity expansions
• Test for cement cartel
• Reduction in profits
• Reduction in capacity
utilization
 SIZE AND TRENDS
• Per capita consumption of cement
Per Capita Consumption of Cement

1000
900
800
700
600
Kg 500
400
300
200
100
0 T a iwa n J apan Th a ila nd M a la ys ia C hina E gypt US A P hilippine Indo ne s ia S rila nka India P a kis t a n

Countries
 SIZE AND TRENDS
• Cement exports
Cement Exports
Cement
12000
Value in 000 U S$

White
10000 Cement
Clinkers
8000
Cement
6000 Portland
4000 Others

2000 TOTAL
0
2000- 2001- 2002-
01 02 03
Years
 CEMENT CARTEL-APCMA
• Formed in 1998
• Restricts quotas daily
• Formed due to extremely bad condition in
90’s
• Business arrangement Vs cartel
 FACTORS AFFECTING
DEMAND CONDITIONS
• Derived demand
 FACTORS AFFECTING
DEMAND CONDITIONS
• Growth in housing sector
1. Increase in liquidity
2. Home loans and house financing
schemes
3. Policies of Government of Pakistan
4. Policies of State Bank of Pakistan
 FACTORS AFFECTING
DEMAND CONDITIONS
• Growth in exports
1. Reconstruction of Afghanistan
2. Export rebates
3. Lower competition with Iran
4. Competitive prices
5. Good quality
6. Expenditures by developing countries
 FACTORS AFFECTING
DEMAND CONDITIONS
• Infrastructure development
1. Projects taken by the government of
Pakistan (Gwadar, highways, dams)
 FACTORS AFFECTING
DEMAND CONDITIONS
• Low per capita consumption
• Wars
• Disasters
 FACTORS AFFECTING
SUPPLY CONDITIONS
• Availability of raw materials
• Imported machinery
• Fuel conversion
• Government duties
• Export distribution
• Low interest rates
FACTOR CONDITIONS

•Human resources

•Related and supporting industries

•Machinery

•Infrastructure
CONTRIBUTION TO GDP

•Share in GDP ( % age):

Construction - 3.5
Housing - 6.0

•Contribution to Employment:
Construction Sector Share 2.50 million

•Globally one of the Largest Industry:

It accounts to 10 - 12 % of GDP in some countries.
 STRENGTHS

•Ideally located cement plants not only provides self-

sufficiency but also earns handsome foreign
exchange.
•Almost all the plants are located at a distance from
the main pollination centers which means no
relocation of the plants.
•Provide High Quality of cement to the consumers.
•Most of the Plants have been converted to either Gas
or Coal.
•Abundant reserves of coal will ensure low cost fuel.
 STRENGTHS

•Raw materials locally available.

•Privatization of the State owned factories cause an
increase in the efficiency and better allocation of
resources.
•Access and proximity to the potential markets.
•It not only helps the Construction industry but it also
forms the backbone of the mining industry.
•Most of the factories are in the hands of renowned
industrial groups.
•There is a potential of power generation.
 STRENGTHS

•One of the few industries will shifts capital from

urban centers to lesser developed regions.
•Increasing trends of urbanization and skyscrapers.
•The time is changing. Cement is now being used in
constructions in rural areas as well.
•Better substitute to the bricks.
WEAKNESSES

•High Taxation Rate

•High Transportation Costs.
•Fluctuating Prices.
•The industry itself does not stimulate the
economy. It is the other way. The industry
depends upon the situation of the economy.
•Some of the factories using the old wet
process.
WEAKNESSES

•Friction between the unions and the management in

various State factories.
•Government fixes the price of cement produce by its
own factories.
•Mismanagement at state factories.
•No new variant of cement produce.
•Underutilization of capacity
•Raw materials supply problems.
•Distribution network is poor.
 OPPORTUNITIES

Exports

•Huge potential of exports, due to

•Rehabilitation process in Afghanistan and Iraq.
•Exports to Tsunami effected countries.
•Huge markets in G.C.C. is explored.
•Exports to C.I.S if there is better connectivity and
better ties.
 OPPORTUNITIES
Domestic Demand
•Growing Economy.
•One of the lowest per capita consumption.
•Rising Living Standards.
•Construction of Mega Projects in the country
like Dams, Motorways, Bridges and Power Stations.
•Investment in Housing sector by the oversees
Pakistanis.
•Gawader City.
THREATS
•Increasing usage of cement substitutes.
•Insistent Government Policies.
•Law and Order Situation in Afghanistan and
Iraq.
•Bilateral relations with the C.I.S.
•Law and Order situation in Baluchistan and
elsewhere.
•Competition from Iran and other regional
players not only in the foreign markets but also
in the domestic markets after WTO.
PORTER’S COMPETITIVE FORCES

Bargaining Power of Buyers:

•Buyers due have the bargaining powers if the

volume bought is huge.
•Government mostly buys the lowest bidder.
•Small buyers have little bargaining power.
•Bargaining power of the buyers increase in off
season or when the demand is low.
PORTER’S COMPETITIVE FORCES

Bargaining Power of Suppliers:

•Many factories own their mines or are place very

near top available raw material source mainly
limestone.
•Suppliers have very little, in fact no bargaining
power since the plants are locates far off and the
factory owners are quite strong.
PORTER’S COMPETITIVE FORCES

Rivalry Among Competitors;

•There is hardly any rivalry among the competitors.

Instead the competitors have made a cartel by the
name of All Pakistan Cement Manufacturers Association
(APCMA)
PORTER’S COMPETITIVE FORCES

Threat of New Entrant:

• Low chances of new entrant due to high capital

requirement, suitable location, easy access to
markets and raw materials.
• Most of the Plants work under capacity.
• New building material threat is minimum.
ISSUES AND PROBLEMS

• High Price of Cement

• There is under capacity usage yet there are

expansion plans across the
industry.
• Conflict between the unions and the
management.
• High Utility costs.
• Environmental Problems
ISSUES AND PROBLEMS

• Safety Standards.
• Price Control of State Factories by the
Government.
• Heavy Taxation.
ISSUES AND PROBLEMS

High Prices of Cement

•The cement cartel made up has led to the demand-supply

manipulations by the manufacturers and resulted in
massive gains for them.

•There has been recent price hike in January of 15 – 25 %.

Which means around R.s 50 per 50 kg bag.
ISSUES AND PROBLEMS

•There is under capacity usage yet there

are expansion plans across the industry.

•Mills owner cry out there is low demand and they

operate at low profit margins. If the profit margins
are low and the demand too then why should
there be expansion.
•Capacity Utilization:
Bestway Cement: 109%
D.G Khan Cement and Lucky Cement 103 %
ISSUES AND PROBLEMS

High Utility Costs

•This industry requires a lot of energy .

However, the international oil prices has soared
to their record prices which had hurt the
industry.
•However, the prudent owners have already
converted from oil to gas or coal powered
plants.
ISSUES AND PROBLEMS

Environmental and Safety Concerns

•The Safety records are very poor in the industry.

•It is one of the most polluting industries. However,
no concrete steps are being taken to address this
issue.
•Government has included this industry in the list
of industries having the risk of child labor.
However, there is no child labor issue up till now.
ISSUES AND PROBLEMS

Heavy Taxation.

•Various taxes under different heads

cumulatively constitutes to 37 % of the cement
prices.
•The taxation is highest in the region.
Philippines and Indonesia 18%
Thailand 7%
 Egypt 10%
Iran Nil
 CRITICAL SUCCESS FACTORS
• Infrastructure development

• U.S invasion of Afghanistan and Iraq

• Conversion of plants

• Lower corporate interest rates

 CRITICAL SUCCESS FACTORS
• Disasters

• Demand-supply manipulations
 GOVERNMENT’S ROLE
• Taxes

• Licenses

• Quota regulated industry and the support

to the cartel

• Export incentives
 COMPARISON WITH CHINA
• Chinese Cement Industry: Background

• Organization of the industry

• Production

• Cement Plants
 COMPARISON WITH CHINA
• Cement Markets

• Prices

• Transportation

• Trade
 COMPARISON WITH INDIA
• Indian Cement Industry: Structure

• Usages

• Production

• Prices
 COMPARISON WITH INDIA
• Players

• Transportation

• Capacity additions

• Industry inputs
 RECOMMENDATIONS
• Imposition of minimum requirements on
cement manufacturers

• More infrastructure projects

• Research and Development

• Use of cement instead of asphalt

 RECOMMENDATIONS
• Foreign investment and transfer of
technology

• Reduction in government levies

• Need for web presence

• Reduced ship loading/unloading time

 RECOMMENDATIONS
• Easier procedures at the port to enhance
the export potential