2.1 Objective and Scope
The report will present a holistic overview of the industry; current situation, industry structure, critical revenue and cost drivers, exposure of BOP in the sector and its future outlook. 2.2 Cement Sector of Pakistan
The Cement sector of Pakistan has 23 players, operating 29 units, with a total production capacity of 44.8 million tons, divided into North and South, as follows: North Zone| South Zone|
* Punjab and Khyber Pakhtoon Khwa| * Sindh and Baluchistan| * 19 manufacturing units| * 10 manufacturing units| * 80% of rated capacity, i.e. 35.9 million tons| * 20% of total rated capacity, i.e. 8.9 million tons|
The overall capacity utilization of the sector, as per FY-10 dispatches is at 76%. The basic raw materials for cement include limestone (upto 80%), clay (upto 15%) and gypsum (5%), all of which are abundant in Pakistan making basic raw material very cheaply available to cement manufacturers. None of the cement producers in Pakistan enjoys any material product differentiation because of the highly standardized nature of product therefore consumers usually regard ‘price’ as a key determinant. Major constituents of the cost are energy & power - over 60% of cost of production of cement - and transportation costs. In addition to these elements efficiency of production process is critical in keeping the overall cost structure competitive. In this regard, size of the plant, its age, and origin - European or Chinese - are of importance. Until recent years, almost all the plants operating in the country were based on furnace oil, but the increasing furnace oil prices forced the cement industry to switch over to Coal-powered/dual-fuel plants. However, the price of coal has shown significant volatility over the recent periods therefore, some producers, having dual-fuel plants, use a mixture of coal and gas, alternating between the two as per changes in prices and availability. 2.3 Cement Sales during FY-10 Compared To FY-09
Source: All Pakistan Cement Manufacturers’ Association
As per All Pakistan Cement Manufacturer’s Association (APCMA), the cement sales in FY-10 totaled 34.20 million tons, registering a decent Year-on-Year (YoY) growth of 9.30% compared to 31.29 million tons in FY-09. The local dispatches remained at 23.54 million tons, up YoY 14.63% compared to 20.53 million tons in FY-09 whereas export sales in FY-10 remained almost flat with a minor decline at 10.66 million tons, down YoY 0.89% compared to 10.75 million tons in the previous year. As shown in the table, the local sales were the primary driver behind the growth. It is pertinent to note that the growth on the local front was mainly private-sector driven rather than Government’s infrastructure spending, showing signs of recovery in the construction sector.
2. INDUSTRY STRUCTURE
3.4 Industry Characteristics
Cement industry is highly cyclical in nature and its performance depends largely upon the economic growth of the country. There is a high degree of correlation between the GDP growth and the growth in local cement consumption.
Source: State Bank of Pakistan & All Pakistan Cement Manufacturers’ Association Cement exports depend largely upon the demand/supply situation, price levels and economic situation in the export regions. Cement, being a voluminous product, is a regional commodity.
3.5 Critical Factors
* The cyclical nature of the sector along with excess supply situation, whenever it persists, makes cement price a very critical factor. Some level of industry ‘co-opetition’, i.e. cooperative competition, is evident in cement industries globally such as consensual pricing. In the absence of such an arrangement, along with a supply glut, cement industries have witnessed intense price wars.
* Power & Energy costs constitute over 60% - 65% of the total cost of cement production. Therefore, smart...