Analysis Of Pakistan's Cement Industry 1i241e
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Cement Industry
Analysis of Pakistan’s Cement Industry
Term Report
Submitted by:
Muhammad Anum Hasan Nooruddin Muzzaffar Zohaib Ali Khan
Class: IBA (Main Campus): BBA 4 (Yr 2005) Course Instructor: Ms. Amber Imtiaz
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Cement Industry
Contents Analysis of Pakistan’s Cement Industry..............................................................................1 Submitted by:...................................................................................................................1 Class: IBA (Main Campus): BBA 4 (Yr 2005)..................................................................1 Course Instructor: Ms. Amber Imtiaz..................................................................................1 Contents...............................................................................................................................2 A. Introduction.....................................................................................................................4 B. Global Cement Trends....................................................................................................5 C. Types of Cement.............................................................................................................6 Ordinary Portland Cement (OPC)....................................................................................6 Slag Cement.....................................................................................................................6 Super Sulfate Resisting Cement (SSRC).........................................................................6 Sulfate Resisting Cement (SRC)......................................................................................6 D. Manufacturing Processes................................................................................................7 Wet Process......................................................................................................................7 Semi-Wet Process............................................................................................................7 Dry Process......................................................................................................................7 The Quarry ......................................................................................................................7 Raw Milling.....................................................................................................................9 Pre-heater and Pre-claimer...............................................................................................9 The Kiln.........................................................................................................................10 The Process ...................................................................................................................11 Packaging and Distribution............................................................................................12 ...........................................................................................................................................13 E. Raw Material.................................................................................................................14 F. Historical Development of Cement Industry of Pakistan..............................................15 Derived demand.............................................................................................................19 As the demand of cement is derived demand and grows with the GDP. The above figure shows the comparative demand and growth of the cement industry with respect to the growth in the GDP of the country. The boom of the eighties and the nineties and again the growing GDP after 9/11 has caused a tremendous growth in the cement industry.....19 G. Size and Trends.............................................................................................................20 Demand-Supply Gap to Restrict Profit Growth.............................................................21 Sustainability of Demand Growth.................................................................................21 Capacity Expansions- a Test for APCMA.....................................................................22 Per Capita Consumption of Cement..............................................................................25 Exports to Afghanistan..................................................................................................27 H. PROFILE OF PAKLAND CEMENT...........................................................................29 Process Features at Pak land..........................................................................................29 Sophisticated Technology..............................................................................................30 Quality Program.............................................................................................................30 Growth of Pak land Cement...........................................................................................30 2
Cement Industry I. Cement Cartel-All Pakistan cement manufacturers ASSOCIATIONS (APCMA)........32 J. Major Players.................................................................................................................32 K. Factors Affecting Demand Conditions.........................................................................33 Growth in Housing Sector.............................................................................................33 Growth in Exports..........................................................................................................34 Infrastructure Development...........................................................................................34 Low Per Capita Consumption of Cement......................................................................36 Wars...............................................................................................................................36 Disasters.........................................................................................................................36 Availability of Raw Materials........................................................................................36 Imported Machinery.......................................................................................................37 Fuel Conversion.............................................................................................................37 Government Duties........................................................................................................37 Export Distribution........................................................................................................37 Low Interest Rates.........................................................................................................37 Emerging trends worldwide...............................................................................................38 Critical Success Factors.....................................................................................................38 Taxes..............................................................................................................................40 Licenses..........................................................................................................................40 Cement Cartel................................................................................................................40 Export Incentives...........................................................................................................40 Comparison of Chinese and Indian Cement Industry........................................................41 CHINESE CEMENT INDUSTRY................................................................................41 INDIAN CEMENT INDUSTRY...................................................................................43 Major cement plants ..................................................................................................44 Mini cement plants ....................................................................................................44 Recommendations..............................................................................................................47
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Cement Industry
A. INTRODUCTION Cement industry is a major indicator of economic growth and revival of any country. This industry gives the growth and improvement of infrastructure of a country. In Pakistan, positive macro economic indicators and governments intention of spending more on social and infrastructure development has increased the demand for cement many folds. This report begins with a general overview of the industry locally and globally. Then we go on with the manufacturing processes and the types of cement. This report also discusses the size, trends, major players, a detailed profile of Pak land cement is also given in the report, regulatory bodies, factors affecting demand and supply, factor conditions, porters competitive forces according to the cement industry, governments role in the industry, comparison with India and China, and finally future prospects and recommendations. Before discussing the local industry let us first analyze the global scenario regarding this industry.
4
Cement Industry
B. GLOBAL CEMENT TRENDS Following are the major trends in the cement industry globally: •
There is a shortage of cement world wide because of the following reasons: o Wars and reconstruction in Afghanistan and Iraq. o Disastrous events such as earthquakes in Iran and Tsunami. o World wide economic recovery resulting in huge developments of infrastructure by developing countries.
•
Construction and engineering industries form 10-12% of the GDP of many counties worldwide.
•
World spending on construction approximately equals $ 3.2 trillion in 1998.
•
The economic uplift of developed countries stands on the infrastructure provided by the cement industry.
•
Newly industrialized nations such as Korea, Malaysia, Singapore, and developing like turkey & Indonesia have used this industry to their advantage.
Now let us find out what are the types of cement and their manufacturing processes.
5
Cement Industry
C. TYPES OF CEMENT Ordinary Portland Cement (OPC) It is the most widely used cement. It is commonly used in our daily lives. It is popular because of its uniformity and excellent quality and in general construction and buildings. This is basic cement all other types are derived forms of OPC with minor chemical changes in the composition.
Slag Cement It is comprised of Portland clinker and granulated blast furnace slag in optimum proportion. It is chemical and heat resistant. It is also economical as compared to other cement. Its short age strength is lower but long age strength is higher. It requires more curing than OPC. It is useful in masonry, plastering, and foundation work etc.
Super Sulfate Resisting Cement (SSRC) This cement is manufactured by mixing limestone, clay, silica sand, and iron ore (510%). Its use is recommended for construction of basement foundation, especially near the areas with higher humidity and near the sea etc. the capacity of this cement to protect reinforcement is limited so its use in superstructures is not advisable.
Sulfate Resisting Cement (SRC) This cement has been developed as a compromise between SSRC and OPC. It has the strength of OPC and the resistance to sulfates and salts of SSRC.
6
Cement Industry
D. MANUFACTURING PROCESSES There are three conventional processes used in Pakistan to manufacture cement:
Wet Process In view of the constraints of kiln dimension and large water requirements and extremely poor heat efficiency, wet process has become obsolete.
Semi-Wet Process The process is suited for materials with sufficiently high plasticity. This process has also become outdated due to high fuel/energy consumption.
Dry Process The dry process was formerly used where water and the raw materials were scarce. But now it is the most popular process in the cement industry. The advantages are: (1) the fuel requirement is about 800 Kcal per kg of clinker (which is about 40 percent less as compared to the wet process). This process enables the processing of a water range of raw and the maintenance is easier. The raw material is preheated and partially calcium resulting in higher kiln efficiency. The kiln being shorter in length requires less space in erection and easier to maintain. A detail of the manufacturing process is given below
The Quarry The basic raw materials for cement are limestone, shale and sand.
7
Cement Industry In order to get at the limestone, various other layers of rock have to be removed. In total, the quarry moves some seven million tones of rock each year - two million tones of limestone, and the remaining five million tones of other material. The various different types of rock are illustrated in the diagram below:
The quarry is very different to the normal type of cement linked quarry - these usually extract the rock from the side of a hill. This presents a number of challenges - getting to the limestone, transferring the other rock and then replacing the materials afterwards. To get to the limestone, various other types of rock have to be extracted and moved. Once removed, the overburden is transferred behind the cut and stored. Once the limestone from the cut has been depleted, the overburden is returned, in the same order. This is important for the stability of the restored land. Different types of machine are used to extract and move different types of rock: •
The dragline
•
The bridge
•
Earth moving machinery
The limestone is extracted by blasting. Typically, there will be one blast a day. Should there still be any large rocks, these are broken up by the drop ball. This simply involves dropping a large ball onto the rocks. The limestone is then transferred by either a 55 or an 80 tone truck to the crusher.
8
Cement Industry
Raw Milling
•
The limestone and shale are transported to the raw mill from the quarry by conveyor. At this stage the materials are in the form of small rocks, up to 150 mm in size.
•
The raw mill reduces these materials from this size to a fine powder. At this stage, sand is also added to the limestone and shale, in the correct proportions, to create the raw meal. The material is crushed by a pair of rollers which presses down onto a rotating table. The material is then caught up in a high velocity gas stream, which sweeps it upwards. The fine powder then exits the mill, while any oversized material falls back to the table for further grinding.
•
The raw meal is then extracted from the gas flow by a large electrostatic precipitator, and is then stored in silos before it enters the pre-heater stage.
Pre-heater and Pre-claimer The raw meal from the storage silos is fed into the pre-heater. Initially the raw meal is crushed by two large grinding wheels (the picture shows one) in the Raw Mill, and is then blown up the pre-heater where it is heated by hot exhaust gases from the kiln.
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Cement Industry
•
•
•
The pre-heater is a large tower some 90 meters high, containing five vessels, or cyclones, through which the raw meal is ed. The raw meal enters the preheater at the top and descends through the cyclones, being heated by hot exhaust gasses from the kiln. Additional fuel is added at the base of the pre-heater. At this stage, the raw meal is heated to 900 oC, and the chemical reaction is initiated. This is known as the pre-calciner stage. About 60% of the total amount of fuel used in the process is burnt at this stage. The fuel is principally ground coal, but Blue Circle is experimenting with burning various recycled materials.
The material then es from the pre-calciner to the kiln.
The Kiln
After the pre-heater stage, the material is moved into the kiln. The raw meal enters the 60m long, 4m wide kiln tube, which is slightly inclined downwards. It rotates at 3.5 rpm, which assists in moving the raw meal through the kiln, towards the 20m long flame. The flame heats the raw meal to 1400 oC in order to complete the chemical reaction, producing what is termed clinker. The hot clinker then drops out of the kiln and is cooled. It is then transported to the next stage of the process, ready for the final milling operation. 10
Cement Industry
The Process
The principal raw materials for cement manufacture are limestone and shale, which occur in the cement quarry. These materials are extracted from the quarry and are crushed and milled and then transported to the Works by a series of conveyers. Once in the Works, sand is added to the limestone and shale, creating a raw meal. This then enters the blending process, which thoroughly mixes the raw meal. The raw meal is then transferred to the pre-heater and precalciner. During this process, the raw meal is heated to 900 oC and the chemical reaction is initiated, thereby reducing the work needed within the kiln. The material is then transported to the kiln.
11
Cement Industry Once inside the rotary kiln, the material is moved towards the coal flame, which heats it to 1450 oC, completing the chemical reaction. At this stage the material is known as clinker. The hot clinker is then rapidly cooled by blowing air over it. A small quantity of gypsum is added to prevent the cement setting too quickly, finally prior to it being ground in ball mills to form a fine powder: cement. The cement is then stored prior to dispatch. The majority of the cement is dispatched in bulk by rail or road. The remaining cement enters the packing process, where it is placed into bags, which are packed onto pallets prior to road dispatch.
Packaging and Distribution
Once the cement has been manufactured, it is stored prior to dispatch in bulk or in bags. Bulk distribution is either by road or by rail. In both cases, the bulk tankers are placed under the storage silo, and are filled to predetermined levels by computer control. Bag distribution is performed by road. The cement is transported from the silo into the bagging machine, which automatically picks up, opens and fills the bag with the correct quantity of cement. The bags are then sealed, marked with the production date, and transported to the palletizing machine. Prior to being packed onto a pallet, each bag is sprayed with an adhesive, which increases the stability of the pallet. The pallets are packed automatically on the palletizing machine, which rotates the pallet in order to improve the stability of the bags. The pallets are then stored, prior to road distribution. 12
Cement Industry
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Cement Industry
E. RAW MATERIAL The raw materials used for the manufacturing of Portland cement are mainly limestone (calcareous material) and clay/ shale (argillaceous material). The most common variety Portland cement is a mixture of calcimined calcareous and argillaceous materials, forming a complex composition consisting of tri-calcium illuminate, tetra-calcium alumna ferrite, de-calcium silicate and tetra calcium ortho silicate. The proportion of the last two constituents in the Portland cement varies from 70-78 percent. While the proportion of first constituent, tri-calcium aluminates is about 10 percent, the balance being the second constituent.
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Cement Industry
F. HISTORICAL DEVELOPMENT OF CEMENT INDUSTRY OF PAKISTAN For a developing country like Pakistan the production and amount of cement used per person indicates the stage of development. When Pakistan came into it has only one to two cement plants. Then up till 1958 we had six cement plants. The greatest development was made in the decade of development (1958-1968). In this development nine plants were set up. In Bhutto’s era (1971-1977) due to nationalization no new plants were set up. Now there are 24 cement plants existing with two sick units bringing the number of operational units to 22.
Number of cement plants in history of Pakistan Years Number of plants 1947 1-2 1948-1958 6 1958-1968 9 1971-1977 No new plants were set up due to nationalization 1977-1988 24 (IRS)
Number of Cement plants in history of Pakistan
Number of plants
30 25 20 15 10 5 0 1947
1948-58
1958-68
1971-77
1977-88
Years
15
Cement Industry
Pakistan is fortunate to be rich in the deposits of limestone, clay and gypsum, which are the basic raw materials for the manufacturing of cement. In spite of having abundant raw materials and rising growth in demand of cement, only five cement factories were set up during thirty years of independence, with aggregate capacity of 3.2 million tons. Consequently, Pakistan had to import cement, which reached to a level of 1.3 million tones in the year 1981-1982. The expenditure incurred on import of cement as well as plant and machinery drained out substantial foreign exchange from the meager national resources for a very long period. The scarcity of cement also hampered the developmental process of the country. Following table shows the growth of production of cement over the years.
Number of plants and production of Cement Number of plants Production (000 million tons) 23
9314
22
9674
22
9935
22
11020
22
13500 Production Capacity
(IRS)
15000 Capacity (000 MT)
Years 19992000 20002001 20012002 20022003 20032004
10000 5000 0 1999-00 2000-01 2001-02 2002-03 2003-04 Years
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Cement Industry
The cement industry follows a cyclical pattern of growth and declines same as the GDP and the business cycle because the demand of cement is derived demand which is directly related to the GDP of the country. Following table shows the historical growth of cement industry.
Percentage Growth of Cement Industry Year Percentage growth of Cement Industry 1990-1991 3.66 1991-1992 7.20 1992-1993 2.85 1993-1994 -5.35 1994-1995 -2.31 1995-1996 20.9 1999-2000 -3.33 2000-2001 1.4 2001-2002 1.61 Historical Growth rate of Cement 2002-2003 12.11 Industry ofinPakistan (Industry Focus 2003-2004 25 Ismat Sabir) 15 10
2003-2004
2002-2003
2001-2002
2000-2001
Years
1999-2000
1995-1996
1994-1995
-10
1993-1994
-5
1992-1993
0
1991-1992
5 1990-1991
Percentage Growth rate
20
17
Cement Industry
18
Cement Industry
Derived demand
As the demand of cement is derived demand and grows with the GDP. The above figure shows the comparative demand and growth of the cement industry with respect to the growth in the GDP of the country. The boom of the eighties and the nineties and again the growing GDP after 9/11 has caused a tremendous growth in the cement industry.
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Cement Industry
G. SIZE AND TRENDS •
“The total number of cement plants in Pakistan is 24 23 of them are operative and 17 are listed on the Karachi stock exchange.
•
Cement industry had a capacity utilization of 81% on June 30, 2004.
•
Some had the capacity utilization higher than 81% i.e. 85-100%; which is the highest in the last decade.
•
Production in the first half of the fiscal year 2004-05 is 732 million tons which equals 83%capacity utilization.
•
The industry reported an after-tax profit of Rs. 3,200 million, a growth of 17% in after-tax profits.
•
During fiscal year 2003-041363 million tones in sales of cement were recorded, resulting in a 20%growth domestically and 160% growth in exports.” (EBRDAWN)
•
“Capacity expansion of 13million tons will go online between FY05-FY09. By FY09 total cement sales will reach 196 million tons, resulting in capacity utilization of 65% as compared to 79%in FY04.” (Cement update-invest cap).
•
•
Currently almost all of the cement plants are undergoing conversion and expansion plans.
•
The conversion has taken place from furnace oil to gas and finally to coal.
•
The increase in demand is expected to increase to 2008-09 due to the reasons described below.
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Cement Industry
Demand-Supply Growth
Gap
to
Restrict
Profit
With 13mn tons of new cement capacity coming online during FY05-FY09, there is bound to be an imbalance between demand and supply. By FY09 total cement sales will reach 19.6mn tons, resulting in a capacity utilization of 65% as compared to 79% in FY04. The above average rise in cement sector profits in FY04 will continue in FY05 and FY06 also. After that, profits will stabilize for the next two years, i.e. till FY08 due to mounting capacity. Beyond FY08 profits will again grow but at a slower pace.
Sustainability of Demand Growth An abnormal surge in domestic cement demand during the last two years FY03-04 is partly due to exceptionally low 21
Cement Industry interest rates, exceptionally low per capita cement consumption in the country and the rise in government spending on mega projects like Gwadar, Karachi by, Kohat Tunnel etc. Moreover, increasing housing activities due to access of liquidity and minimum avenues of investment also helped cement sales growth. Also growth in GDP form 5-7% and exports to Afghanistan have resulted in a sustained growth in demand.
Capacity Expansions- a Test for APCMA In the past two years the listed cement sector has outperformed the market by approximately 40%. After going through rough times cement manufacturers formed an alliance (cartel) and focused their attention on operational efficiencies in the early years of this decade. This coupled with improving economic fundamentals, enabled the industry to turn around with chances of posting profits of Rs. 50 billion in FY04. Due to these record profits and rising demands, the sector is once more going for expansions. But the recent spate of expansions is different from the situation that occurred in the second half of the 90’s Following are the reasons for this assumption:
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Cement Industry •
Although there will be hiccups in the cartel as each competitor aims to get more quota to utilize its expanded capacity effectively, but the of the cartel have seen enough hardships to through up the alliance.
•
Interest rates have come down drastically as compared to the 90’s. It is not likely that short term interest rates would go up to double digits as in the 90’s. Currently the top cement companies can borrow at 1-2% plus 6month KIBOR rates (currently at 4%) (Cement update October 2004)
•
The cement companies are armed with much cheaper source of fuel as compared to 90’s. Though they are importing higher quality coal from South Africa but if hard pressed they can shift to local low quality coal.
•
The surge in cement exports to Afghanistan have acted as a cushion for the industry which in 90’s relied solely on the local market.
•
The economic fundamentals are stronger as compared to the nineties. And growth momentum is likely to continue in future and local demand growth is likely to settle down close to GDP growth rate in the long run. 90’s expansions were financed through loans at higher rates but recent ones are profit financed on low cost and huge cash basis (currently generated profit)
•
•
The companies have learned cost efficiencies through the hardships of the nineties.
•
Local demand side is very positive due to house financing, fiscal space to the government for infrastructure projects after quitting IMF and finishing of deficit targeting.
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Cement Industry
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Cement Industry
Per Capita Consumption of Cement Cement is one of the basic ingredients for the development of a country. Its per capita consumption is an indicator of economic activity in the country. Unfortunately, Pakistan is trailing behind all other developing countries in the region with lowest per capita consumption of cement.
Annual Consumption of Cement Countries Million tons China 512.0 Taiwan 20.8 Malaysia 11.5 Sri Lanka 2.2 Indonesia 19.3 India 85.0 Pakistan 9.1 (IRS) Annual Cement Consumption 600 500 400 MT 300 200 100 0
China
Taiw an
Srilanka Malaysia Indonesia
India
Pakistan
Countries
In Pakistan the per capita consumption was only 76kg as compared to 960kg in Taiwan and 530 kg in Malaysia in the same year. This was even higher in Sri Lanka at 118kg. This 25
Cement Industry low consumption resulted manufacturing capacity.
in
under
utilization
of
Per Capita Consumption of Cement Countries Kg Taiwan 960 Japan 603 Thailand 600 Malaysia 530 China 450 Egypt 334 USA 261 Philippine 202 Indonesia 140 Sri Lanka 118 India 99 Pakistan 2000 76 Pakistan 2003 120 (IRS)
Per Capita Consumption of Cement 1000 900 800 700 600 Kg
500 400 300 200 100 0
Taiwan
J apan
Thailand
Malaysia
China
Egypt
USA
P hilippine
Indonesia
Srilanka
India
Pakistan
Countries 26
Cement Industry
Exports to Afghanistan Export of cement to Afghanistan is another reason for the overall increase in exports. Due to this the proportion of exports in cement sales has now increased to 8 percent from the previous 4 percent. This proportion is expected to improve further up to 17.5 percent by FY08. It is believed that cement exports will touch to 3 million tones per annum. The reasons for this estimation are increasing construction activity in Afghanistan and lower competition from Iran.
Cement Exports (Value in 000 US$) Cement Types 2000-01 Cement White 0 Cement Clinkers 0 Cement Portland 777 Others 2
2001-02 14 0 3180 2
TOTAL
3194
779
2002-03 0 0 10737 0 10737 (Industry in Focus Ismat Sabir)
Value in 000 US$
Cement Exports Cement White Cement Clinkers Cement Portland Others
12000 10000 8000 6000 4000 2000
TOTAL
0 200001
200102
200203
Years
27
Cement Industry Donors had pledged grants to Afghanistan in excess of US$ 3 billion. Early estimates had put the figure of annual investment in Afghanistan at US$1 billion with 15 percent (US$ 15 million) share committed for cement consumption. This represents very bright prospects for construction activity in Afghanistan and the results are evident from the demand for exports materializing from Afghanistan. Iran is the major competitor of Pakistani cement in Afghanistan. Due to the cheaper cement, the market share of Iranian cement was much higher than Pakistani cement. Previously, Iranian cement prices were much lower, i.e., US $32 per ton as compared to Pakistani price of US $70 per ton. However, Pakistani exporters have now become more competitive and are exporting better quality cement at US $30 per ton. Moreover, Iran was initially exporting 10 percent of its production to Afghanistan, but with an increase in its domestic demand, Iran is now concentrating on its domestic market. This is likely to improve the market share of the Pakistani cement. In addition to Afghanistan, Sri Lanka, Bangladesh, Middle East, and Vietnam are being explored as new destinations for cement exports. Industry sources indicate that there is a potential to export 2 to 3 million tones per annum of cement to these countries.
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Cement Industry
H. PROFILE OF PAKLAND CEMENT Pak land’s corporate philosophy is based on the concept of excellence. This has enabled the company to maintain its superiority in product quality, resource management and operational systems design. Pak land commenced business in 1976by establishing a land development company by the name of Pak land housing (PVT) limited. This company is now Pakistan’s largest land developer in the private sector. As an organization dedicated to the industrial and economic development of Pakistan, Pak land looks ahead to the future with the same spirit of commitment that has characterized its first major industrial venture- Pak land cement limited.
PAKLAND CEMENT
Achieved rated capacity with in six hours of commissioning
Produced over 100% annual rated capacity in the first year of ope
Country’s first cement plant to have computerized quarry plann
Computerized quality assurance program for uniform high quality Built and commissioned in record time of 2.5 years
Optimum plant operations achieved with only a workforce of 1
Process Features at Pak land The selection of the manufacturing process fro cement determines its quality. The process varies from wet to dry methods of preparing raw materials for burning. Following are the steps involved in the manufacturing of cement at Pak land: • •
Latest process design technology Suspension preheated type of dry process system 29
Cement Industry • • •
Specially designed sampling station Latest pre homogenizing techniques Advanced technology with central control station
Sophisticated Technology Sophisticated technology available at Pak land can be highlighted in the following features • • • •
Central control technology to operate and monitor the whole process line from a single station Latest dust suppression and pollution control techniques Uninterrupted electrical power supply Microprocessor controlled X-ray analyzer
Quality Program Quality assurance in the cement manufacturing industry is not limited to discrete test on the end product. It is a continuous process, covering all stages of production, starting from quarrying of raw materials to the packaging of finished product. The quality assurance program has the following parts • • • • •
Clearly defined objectives Manpower training Sophisticated equipment Multiple especially designed sampling stations Frequent sampling
Growth of Pak land Cement At Pak land, it is the management’s aim to set challenging targets and then provide the atmosphere and the infrastructure to achieve this. An ambitious program was undertaken in 1987-88 to optimize the production capacity to 1500 TPD (tons per day) from the original 1000 TPD. Thereafter a further expansion was planned to more or less double the capacity of the plant which also has been achieved. Efforts are underway to further enhance the capacity of this plant to 30
Cement Industry 3000 TPD. Consultants have been approached and design specifications are under preparation.
31
Cement Industry
I. CEMENT CARTEL-ALL PAKISTAN CEMENT MANUFACTURERS ASSOCIATIONS (APCMA) Before private investment came into this sector the cement industry had only the state cement corporation of Pakistan (SC). But in Zia’s era after privatization and the boom of the 80’s many cement factories sprung up resulting in fierce competition and price wars. It continued in the 80’s but with the recession setting in during mid and late 90’s the cement manufacturers were hard pressed for survival and this led to the formation of APCMA - ALL PAKISTAN CEMENT MANUFACTURERS ASSOCIATION. The duty of this cartel is not to regulate price but to regulate quotas. The of this cartel call it a “business arrangement” but outsiders call it a cartel.
J. MAJOR PLAYERS 1) Attock cement 2) Best way cement 3) Chakwal cement 4) Cherat cement 5) D.G. Khan Cement 6) Dadabhoy cement 7) Dadex cement 8) Fauji cement 9) Fecto cement 10) Gharibwal cement 11) Javdan cement 12) Kohat cement 13) Luckey cement 14) Maple leaf cement 15) Mustehkum cement 16) Pakistan slag cement 17) Dewan (Pakland) cement 18) Saadi cement 19) Zeal pak cement 20) Essa cement 21) Dandot cement 22) Kohat cement 32
Cement Industry
K. FACTORS AFFECTING DEMAND CONDITIONS Following are the main factors affecting the demand of cement: • • • • • •
Growth in housing sector Increase in exports of cement Infrastructure development Low per capita consumption of cement Wars Disasters
Growth in Housing Sector Following are the reasons for the growth in housing sector • • • •
Liquidity in the market has increased a lot by the introduction of new house finance schemes. Remittances from overseas Pakistanis have increased leading to the in crease in expenditure of house building by the consumers. The banking sector is loaded with liquidity. The government of Pakistan has launched several policies to this sector like o National housing policy to regularize kachi abadies. o Tax incentives were provided to in the form of tax deductibility of mark up to loan borrowers. o The limit of property income with holding taxes were enhanced from 0.1 million to 0.2 million, to encourage documentation. o Concessionary import duty of 10% on the import of machinery. o Reduction in central excise duty (CED) on cement. o Ease in issuance of no objection certificates (NOC) o Increase in budgetary allocation for the public sector development program (PSDP) by the government of Pakistan. 33
Cement Industry o GHAR AASAN and SHANDAR GHAR schemes were introduced. •
Several measures have also been taken by the State Bank of Pakistan o SBP first increased the limit of loan to house financing and then removed it from March 19, 2005. o Debt to equity ratio was changed from 70:30 to 80:20. o The maximum loan period was enhanced from 15 year to 20 years. o The foreclosure law was amended to allow the banks to repossess the properties without recourse to court.
Growth in Exports • • •
Growth of exports of cement have increased from 4% to 8% Cement exports are expected to touch the 3million ton mark. Following are the reasons for the growth in exports of cement o Construction activity is rapidly rising in Afghanistan. o Lower competition from Iran even with its lower prices and easy accessibility the reason for this change is increased domestic demand in Iran due to the reconstruction in earth quake affected areas. o Export rebates of 12.5% o Competitive prices due to export rebate, fuel efficiency and low transportation costs.
Infrastructure Development Several public sector development projects (PSDP) have been started by the government of Pakistan like Gwadar Port, highway and motor way projects, building and reconstruction of dams and Kohat tunnel etc. 34
Cement Industry
35
Cement Industry
Low Per Capita Consumption of Cement As stated earlier the per capita consumption of cement in Pakistan has been very low 76 kg as compared to a world average of 245 kg. This means that there is a great requirement of cement if the growth picks up a bit, as is evident by the present scenario.
Wars Wars and reconstruction activity in countries like Afghanistan and Iraq have increased the consumption of cement many folds. The huge developmental expenditure by their governments and the inflow of aid from developed countries has also increased the demand for cement.
Disasters Earth quakes in Iran and tsunami in Far East led to a direct increase in the demand for cement so that these countries could develop and provide shelter to their people.
L. FACTORS CONDITIONS
AFFECTING
SUPPLY
Following are the factors affecting the supply of cement: • • • • • •
Availability of raw materials Imported machinery Fuel conversion Government duties Export distribution Low interest rates
Availability of Raw Materials Pakistan in fortunate enough to have vast amount of natural resources as far as the cement industry is concerned. We have rich deposits of limestone and gypsum some of the basic raw materials required to manufacture cement. 36
Cement Industry
Imported Machinery Machinery in Pakistan is all imported which makes the quality of our cement much better than the quality of cement in the region but it makes it expensive and the industry has become too much dependent on imports.
Fuel Conversion The cement industry has converted from very unreliable resource of power and heat i.e. furnace oil to a more cheaper and easily available gas and then to even cheaper coal.
Government Duties The government has reduced the CED from Rs.50 to Rs.37.5 and the sales tax has been reduced from Rs.72 to Rs. 34.5 thus reducing the price and increasing demand and supply.
Export Distribution The distribution channels for the exports of cement are not well established. It takes Pakistan 3 days to fill a ship with cement of export and only 6 hours to India to fill a ship thus increasing our lead time and reducing our supply in a highly competitive global market where cement is short in supply; where as India is able to fill 12 ships we are able to fill only one.
Low Interest Rates The cement industry is able to borrow at 1-2% interest +KIBOR (Karachi inter bank open rates) thus earning a lot more than paying in interest expenses.
37
Cement Industry
EMERGING TRENDS WORLDWIDE High degree of mechanization and capacity to handle large volumes has lowered the run-of- mine costs. Detailed geological explorations and technological advances made in geo-statistics and interpretations now make it possible for a clearer understanding of structures and working of limestone, balancing the economics, deploying large earthmoving equipment, handle large volumes of overburden and exploit residual threshold deposits. This has created opportunities for mining engineers, manufacturers of equipment and consultants and a definite need for technical and operational excellence for survival.
CRITICAL SUCCESS FACTORS These are some of the factors that were cashed on in time to bring success to the cement industry of Pakistan: • Government of Pakistan is planning to invest huge sums of money to the infrastructure development in the country. Building of massive infrastructure projects such as building of dams, highways and Gwadar port city are examples. • The U.S invasion of Iraq and Afghanistan has opened a whole range of new opportunities for the cement manufacturers in Pakistan to export. • The recent conversions to low-cost coal powered plants from the previously oil powered ones have reduced the costs of production • The lower corporate interest rate has led to the industry expanding the production units and thus increasing the capacity. • The disasters such as Tsunami, which has inflicted several countries and other countries that suffer natural disasters, need cement to rebuild their countries from the devastating after-effects. This has increased the cement demand even more. • The cement cartel made up has led to the demandsupply manipulations by the manufacturers and resulted in massive gains for them
38
Cement Industry
39
Cement Industry
GOVERNMENT’S ROLE The Government of Pakistan has taken varying stances on different issues regarding the industry:
Taxes This industry has to pay different taxes whose cumulative impact on prices make them more uncompetitive compared to the other countries in the region. The industry has to pay the Central Excise Duty as well as the Sales tax of 15% on the proposed price of the cement bag. A comparative study regarding taxes on cement indicates that as against Pakistan where the taxes on cement are 37%, it is nil in Iran, 7% in Thailand, and 10% in Egypt, Philippines and Indonesia and 18% in India. As a matter of fact, Pakistan has one of the highest tax rates on cement in the Asian region.
Licenses This industry is again one of those industries that has benefited from the different political leaderships in the economy. The different governments kept on granting licenses regardless of the actual demand. This has led to the industry being working under-capacity for most of the time.
Cement Cartel In 1998, APCMA made a cartel of all cement manufacturers who affect the cement prices by allocating the quota for production for each day. This cartel is overtly ed by the government for the betterment of the industrialists.
Export Incentives The export potential of this industry has not been fully exploited; however, the incentive for the exporters is that there is no GST applied on it, so the prices of export products are lower compared to the local market. The government, however, has failed to provide for adequate port facilities to the exporters to ease the entire process. 40
Cement Industry
COMPARISON OF CHINESE AND INDIAN CEMENT INDUSTRY CHINESE CEMENT INDUSTRY Overview China is expected to remain the world’s most populous country through 2040. Its gross domestic product (GDP) has averaged growth of more than 9 percent each year since liberalization and economic reforms began in the late 1970s. In 1985, China became the World’s leading producer of cement and today produces over one-third of total global output. While China’s cement industry is relatively insulated from a global perspective, changes are underway to improve product quality, management practices and profitability, including further opening the sector to participation by international players.
Organization of the Industry In 2000 and 2001, the Chinese government decentralized its industrial ministries, and the organizational structure of the cement industry remains in a state of flux.
Ownership A shrinking number of cement companies (now about 24 percent) remain state-owned, while a growing number (about 3 percent) are foreign invested enterprises (FIEs). Collective enterprises for over 50 percent of companies while 10 percent are privately owned. There also is a trend toward consolidation and mergers.
Production China has been the world’s leading cement producer since 1985. The United States Geological Survey estimated that China produced about 36 percent of the world’s total. 41
Cement Industry Combined, the next three largest producers—the United States, India, and Japan—produce less than 20 percent of the world’s cement.
Cement Plants The estimated number of Chinese cement plants ranges from 8,000 to 9,300, although the actual number is uncertain due to the fragmented nature of the industry, the small size of many plants, the fact that some plants exist illegally, and data reliability issues.
Cement Markets China consumes about 35 percent of the world’s cement, a figure expected to rise to about 40 percent by 2010.
Domestic Demand Growth in Chinese cement production is due to the construction boom accompanying high GDP growth rates. Forty percent of China’s cement is now used for basic infrastructure construction.
Prices Low quality cement is oversupplied and cheap, while high quality cement is rarer and more expensive. Profit margins for most cement producers hover near zero.
Transportation Because cement is a bulk commodity, transportation costs are a significant component of the industry’s cost structure. Foreign investment in bulk cement storage and transportation facilities is now strongly promoted.
42
Cement Industry
Trade China is the second leading cement exporter in the world, ing for about 17 percent of total world cement trade. Exports of cement dramatically exceed imports, about 5 million tones The United States is the largest market for Chinese cement, ing for 42 percent of trade.
INDIAN CEMENT INDUSTRY Overview 1. Indian cement industry dates back to 1914 - first unit was set-up at Porbandar with a capacity of 1000 tones 2. Currently India is ranked second in the world with an installed capacity of 114.2 million tones. Industry estimated at around Rs. 18,000 crores (US $ 4185 mn) 3. Current per capita consumption is 85 kgs. as against world standard of 256 kgs 4. Cement grade limestone in the country reported to be 89 bt. A large proportion however is unexploitable. 5. 55 - 60% of the cost of production are government controlled 6. Cement sales are primarily through a distribution channel. Bulk sales for < 1% of the total cement produced. 7. Ready mix concrete is a relatively nascent market in India
43
Cement Industry
Structure of the industry Major cement plants • • • • • • • • • • • •
Companies : 59 Plants : 116 Typical installed capacity per plant : Above 1.5mntpa Total installed capacity : 105 mntpa Excise :Rs. 350/ tonne All India reach through multiple plants Export to Bangladesh, Nepal, Sri Lanka, UAE and Mauritius Strong marketing network, tie-ups with customers, contractors Wide spread distribution network .
Mini cement plants • • • • • •
• • •
• •
Nearly 300 plants Located in Gujarat, Rajasthan, MP Typical capacity < 200 tpd Installed capacity around 9 mn. Tonnes Excise : Rs. 200/ tonne Mini plants were meant to tap scattered limestone reserves. However most set up in AP Most use vertical kiln technology Production cost / tonne - Rs. 1,000 to 1,400 Presence of these plants limited to the state Infrastructural facilities not the best
Sales primarily through the dealer channel
Usage Private housing sector is the major consumer of cement (65%) followed by the government infrastructure sector at 15% down from 20%) < 1% of the cement produced is sold in bulk form unlike US & Japan
Production
44
Cement Industry
• • • •
Excess capacity exists, though some units are sick Cement manufactured through the wet, semi-dry or dry process s for about 7% Dry process s for 93% of the installed capacity Dry process replacing wet process as it is space saving energy efficient and economical
Prices • • •
Price fluctuations high Essentially determined by demand Prices also vary with grades
Players
• • •
Over 370 companies in the organized sector However, industry dominated by 20 companies who for over 70% of the market Individually no company s for over 12% of the market
45
Cement Industry
Concerns •
Cement industry going through a consolidation phase in the last few years
Transportation • •
Transportation costs high - freight s for 17% of the production cost Road preferred mode for transportation for distances less than 250kms. However, industry is heavily dependant on roads as the railway infrastructure is not adequate - shortage of wagons.
Capacity additions • •
•
Acquisitions have been the mainstay of the business Regional imbalance resulting in cross regional movement limestone availability in pockets has led to uneven capacity additions Capacity additions have slowed down
Industry inputs • • • • •
Highly capital intensive industry Nearly 55-60% of the inputs controlled by the government Facing problems due to power shortage Coal availability and quality affecting production Mini plants realization of revenue lower than large plants, survival difficult
46
Cement Industry
RECOMMENDATIONS These are the recommendations that can be implemented in the cement industry to reinforce its success: • There are many players in the industry that are not functioning efficiently. There needs to be certain minimum requirements that should be fulfilled by the manufacturers. The government can give deadlines to the manufacturers for implementing those measures, which if not implemented, will lead to the closure of the companies. These minimum requirements can be conversion to low-cost coal powered plants. •
The government can initiate more infrastructure projects to develop the country and, in turn, developing the industry.
•
The industry is dominated by a few giants along with relatively smaller players. Thus, these giants need to get involved into more research and development to come up with new varieties of cements, different production methods and other such innovations.
•
Just as the transport sector of China uses cement in road construction rather than asphalt, Pakistan can also implement the same. With more and more road development, the industry would also benefit.
•
Although the manufacturing plants and machineries are imported from other countries, there is not much emphasis on the foreign investment in this line. The industry in specific and the country at large stand to gain from the foreign investment and the transfer of 47
Cement Industry technology gains to be made. However, this issue needs to be taken up seriously by the government. •
There should be more reductions in the government levies to make the industry more competitive in the export market.
•
Like many other competitive industries in Pakistan as well as the cement industries of other countries, the manufacturers and the APCMA need to have a web presence that is highly updated. This can bring in more investors as well as customers to this sector.
•
It takes around three days for a single ship to be loaded with cement for export. If this ship loading/unloading time could be reduced, we would be better able to handle the exports more quickly.
•
There should be easy and quick procedures at the ports to facilitate the cement exporters with the process.
48
Analysis of Pakistan’s Cement Industry
Term Report
Submitted by:
Muhammad Anum Hasan Nooruddin Muzzaffar Zohaib Ali Khan
Class: IBA (Main Campus): BBA 4 (Yr 2005) Course Instructor: Ms. Amber Imtiaz
1
Cement Industry
Contents Analysis of Pakistan’s Cement Industry..............................................................................1 Submitted by:...................................................................................................................1 Class: IBA (Main Campus): BBA 4 (Yr 2005)..................................................................1 Course Instructor: Ms. Amber Imtiaz..................................................................................1 Contents...............................................................................................................................2 A. Introduction.....................................................................................................................4 B. Global Cement Trends....................................................................................................5 C. Types of Cement.............................................................................................................6 Ordinary Portland Cement (OPC)....................................................................................6 Slag Cement.....................................................................................................................6 Super Sulfate Resisting Cement (SSRC).........................................................................6 Sulfate Resisting Cement (SRC)......................................................................................6 D. Manufacturing Processes................................................................................................7 Wet Process......................................................................................................................7 Semi-Wet Process............................................................................................................7 Dry Process......................................................................................................................7 The Quarry ......................................................................................................................7 Raw Milling.....................................................................................................................9 Pre-heater and Pre-claimer...............................................................................................9 The Kiln.........................................................................................................................10 The Process ...................................................................................................................11 Packaging and Distribution............................................................................................12 ...........................................................................................................................................13 E. Raw Material.................................................................................................................14 F. Historical Development of Cement Industry of Pakistan..............................................15 Derived demand.............................................................................................................19 As the demand of cement is derived demand and grows with the GDP. The above figure shows the comparative demand and growth of the cement industry with respect to the growth in the GDP of the country. The boom of the eighties and the nineties and again the growing GDP after 9/11 has caused a tremendous growth in the cement industry.....19 G. Size and Trends.............................................................................................................20 Demand-Supply Gap to Restrict Profit Growth.............................................................21 Sustainability of Demand Growth.................................................................................21 Capacity Expansions- a Test for APCMA.....................................................................22 Per Capita Consumption of Cement..............................................................................25 Exports to Afghanistan..................................................................................................27 H. PROFILE OF PAKLAND CEMENT...........................................................................29 Process Features at Pak land..........................................................................................29 Sophisticated Technology..............................................................................................30 Quality Program.............................................................................................................30 Growth of Pak land Cement...........................................................................................30 2
Cement Industry I. Cement Cartel-All Pakistan cement manufacturers ASSOCIATIONS (APCMA)........32 J. Major Players.................................................................................................................32 K. Factors Affecting Demand Conditions.........................................................................33 Growth in Housing Sector.............................................................................................33 Growth in Exports..........................................................................................................34 Infrastructure Development...........................................................................................34 Low Per Capita Consumption of Cement......................................................................36 Wars...............................................................................................................................36 Disasters.........................................................................................................................36 Availability of Raw Materials........................................................................................36 Imported Machinery.......................................................................................................37 Fuel Conversion.............................................................................................................37 Government Duties........................................................................................................37 Export Distribution........................................................................................................37 Low Interest Rates.........................................................................................................37 Emerging trends worldwide...............................................................................................38 Critical Success Factors.....................................................................................................38 Taxes..............................................................................................................................40 Licenses..........................................................................................................................40 Cement Cartel................................................................................................................40 Export Incentives...........................................................................................................40 Comparison of Chinese and Indian Cement Industry........................................................41 CHINESE CEMENT INDUSTRY................................................................................41 INDIAN CEMENT INDUSTRY...................................................................................43 Major cement plants ..................................................................................................44 Mini cement plants ....................................................................................................44 Recommendations..............................................................................................................47
3
Cement Industry
A. INTRODUCTION Cement industry is a major indicator of economic growth and revival of any country. This industry gives the growth and improvement of infrastructure of a country. In Pakistan, positive macro economic indicators and governments intention of spending more on social and infrastructure development has increased the demand for cement many folds. This report begins with a general overview of the industry locally and globally. Then we go on with the manufacturing processes and the types of cement. This report also discusses the size, trends, major players, a detailed profile of Pak land cement is also given in the report, regulatory bodies, factors affecting demand and supply, factor conditions, porters competitive forces according to the cement industry, governments role in the industry, comparison with India and China, and finally future prospects and recommendations. Before discussing the local industry let us first analyze the global scenario regarding this industry.
4
Cement Industry
B. GLOBAL CEMENT TRENDS Following are the major trends in the cement industry globally: •
There is a shortage of cement world wide because of the following reasons: o Wars and reconstruction in Afghanistan and Iraq. o Disastrous events such as earthquakes in Iran and Tsunami. o World wide economic recovery resulting in huge developments of infrastructure by developing countries.
•
Construction and engineering industries form 10-12% of the GDP of many counties worldwide.
•
World spending on construction approximately equals $ 3.2 trillion in 1998.
•
The economic uplift of developed countries stands on the infrastructure provided by the cement industry.
•
Newly industrialized nations such as Korea, Malaysia, Singapore, and developing like turkey & Indonesia have used this industry to their advantage.
Now let us find out what are the types of cement and their manufacturing processes.
5
Cement Industry
C. TYPES OF CEMENT Ordinary Portland Cement (OPC) It is the most widely used cement. It is commonly used in our daily lives. It is popular because of its uniformity and excellent quality and in general construction and buildings. This is basic cement all other types are derived forms of OPC with minor chemical changes in the composition.
Slag Cement It is comprised of Portland clinker and granulated blast furnace slag in optimum proportion. It is chemical and heat resistant. It is also economical as compared to other cement. Its short age strength is lower but long age strength is higher. It requires more curing than OPC. It is useful in masonry, plastering, and foundation work etc.
Super Sulfate Resisting Cement (SSRC) This cement is manufactured by mixing limestone, clay, silica sand, and iron ore (510%). Its use is recommended for construction of basement foundation, especially near the areas with higher humidity and near the sea etc. the capacity of this cement to protect reinforcement is limited so its use in superstructures is not advisable.
Sulfate Resisting Cement (SRC) This cement has been developed as a compromise between SSRC and OPC. It has the strength of OPC and the resistance to sulfates and salts of SSRC.
6
Cement Industry
D. MANUFACTURING PROCESSES There are three conventional processes used in Pakistan to manufacture cement:
Wet Process In view of the constraints of kiln dimension and large water requirements and extremely poor heat efficiency, wet process has become obsolete.
Semi-Wet Process The process is suited for materials with sufficiently high plasticity. This process has also become outdated due to high fuel/energy consumption.
Dry Process The dry process was formerly used where water and the raw materials were scarce. But now it is the most popular process in the cement industry. The advantages are: (1) the fuel requirement is about 800 Kcal per kg of clinker (which is about 40 percent less as compared to the wet process). This process enables the processing of a water range of raw and the maintenance is easier. The raw material is preheated and partially calcium resulting in higher kiln efficiency. The kiln being shorter in length requires less space in erection and easier to maintain. A detail of the manufacturing process is given below
The Quarry The basic raw materials for cement are limestone, shale and sand.
7
Cement Industry In order to get at the limestone, various other layers of rock have to be removed. In total, the quarry moves some seven million tones of rock each year - two million tones of limestone, and the remaining five million tones of other material. The various different types of rock are illustrated in the diagram below:
The quarry is very different to the normal type of cement linked quarry - these usually extract the rock from the side of a hill. This presents a number of challenges - getting to the limestone, transferring the other rock and then replacing the materials afterwards. To get to the limestone, various other types of rock have to be extracted and moved. Once removed, the overburden is transferred behind the cut and stored. Once the limestone from the cut has been depleted, the overburden is returned, in the same order. This is important for the stability of the restored land. Different types of machine are used to extract and move different types of rock: •
The dragline
•
The bridge
•
Earth moving machinery
The limestone is extracted by blasting. Typically, there will be one blast a day. Should there still be any large rocks, these are broken up by the drop ball. This simply involves dropping a large ball onto the rocks. The limestone is then transferred by either a 55 or an 80 tone truck to the crusher.
8
Cement Industry
Raw Milling
•
The limestone and shale are transported to the raw mill from the quarry by conveyor. At this stage the materials are in the form of small rocks, up to 150 mm in size.
•
The raw mill reduces these materials from this size to a fine powder. At this stage, sand is also added to the limestone and shale, in the correct proportions, to create the raw meal. The material is crushed by a pair of rollers which presses down onto a rotating table. The material is then caught up in a high velocity gas stream, which sweeps it upwards. The fine powder then exits the mill, while any oversized material falls back to the table for further grinding.
•
The raw meal is then extracted from the gas flow by a large electrostatic precipitator, and is then stored in silos before it enters the pre-heater stage.
Pre-heater and Pre-claimer The raw meal from the storage silos is fed into the pre-heater. Initially the raw meal is crushed by two large grinding wheels (the picture shows one) in the Raw Mill, and is then blown up the pre-heater where it is heated by hot exhaust gases from the kiln.
9
Cement Industry
•
•
•
The pre-heater is a large tower some 90 meters high, containing five vessels, or cyclones, through which the raw meal is ed. The raw meal enters the preheater at the top and descends through the cyclones, being heated by hot exhaust gasses from the kiln. Additional fuel is added at the base of the pre-heater. At this stage, the raw meal is heated to 900 oC, and the chemical reaction is initiated. This is known as the pre-calciner stage. About 60% of the total amount of fuel used in the process is burnt at this stage. The fuel is principally ground coal, but Blue Circle is experimenting with burning various recycled materials.
The material then es from the pre-calciner to the kiln.
The Kiln
After the pre-heater stage, the material is moved into the kiln. The raw meal enters the 60m long, 4m wide kiln tube, which is slightly inclined downwards. It rotates at 3.5 rpm, which assists in moving the raw meal through the kiln, towards the 20m long flame. The flame heats the raw meal to 1400 oC in order to complete the chemical reaction, producing what is termed clinker. The hot clinker then drops out of the kiln and is cooled. It is then transported to the next stage of the process, ready for the final milling operation. 10
Cement Industry
The Process
The principal raw materials for cement manufacture are limestone and shale, which occur in the cement quarry. These materials are extracted from the quarry and are crushed and milled and then transported to the Works by a series of conveyers. Once in the Works, sand is added to the limestone and shale, creating a raw meal. This then enters the blending process, which thoroughly mixes the raw meal. The raw meal is then transferred to the pre-heater and precalciner. During this process, the raw meal is heated to 900 oC and the chemical reaction is initiated, thereby reducing the work needed within the kiln. The material is then transported to the kiln.
11
Cement Industry Once inside the rotary kiln, the material is moved towards the coal flame, which heats it to 1450 oC, completing the chemical reaction. At this stage the material is known as clinker. The hot clinker is then rapidly cooled by blowing air over it. A small quantity of gypsum is added to prevent the cement setting too quickly, finally prior to it being ground in ball mills to form a fine powder: cement. The cement is then stored prior to dispatch. The majority of the cement is dispatched in bulk by rail or road. The remaining cement enters the packing process, where it is placed into bags, which are packed onto pallets prior to road dispatch.
Packaging and Distribution
Once the cement has been manufactured, it is stored prior to dispatch in bulk or in bags. Bulk distribution is either by road or by rail. In both cases, the bulk tankers are placed under the storage silo, and are filled to predetermined levels by computer control. Bag distribution is performed by road. The cement is transported from the silo into the bagging machine, which automatically picks up, opens and fills the bag with the correct quantity of cement. The bags are then sealed, marked with the production date, and transported to the palletizing machine. Prior to being packed onto a pallet, each bag is sprayed with an adhesive, which increases the stability of the pallet. The pallets are packed automatically on the palletizing machine, which rotates the pallet in order to improve the stability of the bags. The pallets are then stored, prior to road distribution. 12
Cement Industry
13
Cement Industry
E. RAW MATERIAL The raw materials used for the manufacturing of Portland cement are mainly limestone (calcareous material) and clay/ shale (argillaceous material). The most common variety Portland cement is a mixture of calcimined calcareous and argillaceous materials, forming a complex composition consisting of tri-calcium illuminate, tetra-calcium alumna ferrite, de-calcium silicate and tetra calcium ortho silicate. The proportion of the last two constituents in the Portland cement varies from 70-78 percent. While the proportion of first constituent, tri-calcium aluminates is about 10 percent, the balance being the second constituent.
14
Cement Industry
F. HISTORICAL DEVELOPMENT OF CEMENT INDUSTRY OF PAKISTAN For a developing country like Pakistan the production and amount of cement used per person indicates the stage of development. When Pakistan came into it has only one to two cement plants. Then up till 1958 we had six cement plants. The greatest development was made in the decade of development (1958-1968). In this development nine plants were set up. In Bhutto’s era (1971-1977) due to nationalization no new plants were set up. Now there are 24 cement plants existing with two sick units bringing the number of operational units to 22.
Number of cement plants in history of Pakistan Years Number of plants 1947 1-2 1948-1958 6 1958-1968 9 1971-1977 No new plants were set up due to nationalization 1977-1988 24 (IRS)
Number of Cement plants in history of Pakistan
Number of plants
30 25 20 15 10 5 0 1947
1948-58
1958-68
1971-77
1977-88
Years
15
Cement Industry
Pakistan is fortunate to be rich in the deposits of limestone, clay and gypsum, which are the basic raw materials for the manufacturing of cement. In spite of having abundant raw materials and rising growth in demand of cement, only five cement factories were set up during thirty years of independence, with aggregate capacity of 3.2 million tons. Consequently, Pakistan had to import cement, which reached to a level of 1.3 million tones in the year 1981-1982. The expenditure incurred on import of cement as well as plant and machinery drained out substantial foreign exchange from the meager national resources for a very long period. The scarcity of cement also hampered the developmental process of the country. Following table shows the growth of production of cement over the years.
Number of plants and production of Cement Number of plants Production (000 million tons) 23
9314
22
9674
22
9935
22
11020
22
13500 Production Capacity
(IRS)
15000 Capacity (000 MT)
Years 19992000 20002001 20012002 20022003 20032004
10000 5000 0 1999-00 2000-01 2001-02 2002-03 2003-04 Years
16
Cement Industry
The cement industry follows a cyclical pattern of growth and declines same as the GDP and the business cycle because the demand of cement is derived demand which is directly related to the GDP of the country. Following table shows the historical growth of cement industry.
Percentage Growth of Cement Industry Year Percentage growth of Cement Industry 1990-1991 3.66 1991-1992 7.20 1992-1993 2.85 1993-1994 -5.35 1994-1995 -2.31 1995-1996 20.9 1999-2000 -3.33 2000-2001 1.4 2001-2002 1.61 Historical Growth rate of Cement 2002-2003 12.11 Industry ofinPakistan (Industry Focus 2003-2004 25 Ismat Sabir) 15 10
2003-2004
2002-2003
2001-2002
2000-2001
Years
1999-2000
1995-1996
1994-1995
-10
1993-1994
-5
1992-1993
0
1991-1992
5 1990-1991
Percentage Growth rate
20
17
Cement Industry
18
Cement Industry
Derived demand
As the demand of cement is derived demand and grows with the GDP. The above figure shows the comparative demand and growth of the cement industry with respect to the growth in the GDP of the country. The boom of the eighties and the nineties and again the growing GDP after 9/11 has caused a tremendous growth in the cement industry.
19
Cement Industry
G. SIZE AND TRENDS •
“The total number of cement plants in Pakistan is 24 23 of them are operative and 17 are listed on the Karachi stock exchange.
•
Cement industry had a capacity utilization of 81% on June 30, 2004.
•
Some had the capacity utilization higher than 81% i.e. 85-100%; which is the highest in the last decade.
•
Production in the first half of the fiscal year 2004-05 is 732 million tons which equals 83%capacity utilization.
•
The industry reported an after-tax profit of Rs. 3,200 million, a growth of 17% in after-tax profits.
•
During fiscal year 2003-041363 million tones in sales of cement were recorded, resulting in a 20%growth domestically and 160% growth in exports.” (EBRDAWN)
•
“Capacity expansion of 13million tons will go online between FY05-FY09. By FY09 total cement sales will reach 196 million tons, resulting in capacity utilization of 65% as compared to 79%in FY04.” (Cement update-invest cap).
•
•
Currently almost all of the cement plants are undergoing conversion and expansion plans.
•
The conversion has taken place from furnace oil to gas and finally to coal.
•
The increase in demand is expected to increase to 2008-09 due to the reasons described below.
20
Cement Industry
Demand-Supply Growth
Gap
to
Restrict
Profit
With 13mn tons of new cement capacity coming online during FY05-FY09, there is bound to be an imbalance between demand and supply. By FY09 total cement sales will reach 19.6mn tons, resulting in a capacity utilization of 65% as compared to 79% in FY04. The above average rise in cement sector profits in FY04 will continue in FY05 and FY06 also. After that, profits will stabilize for the next two years, i.e. till FY08 due to mounting capacity. Beyond FY08 profits will again grow but at a slower pace.
Sustainability of Demand Growth An abnormal surge in domestic cement demand during the last two years FY03-04 is partly due to exceptionally low 21
Cement Industry interest rates, exceptionally low per capita cement consumption in the country and the rise in government spending on mega projects like Gwadar, Karachi by, Kohat Tunnel etc. Moreover, increasing housing activities due to access of liquidity and minimum avenues of investment also helped cement sales growth. Also growth in GDP form 5-7% and exports to Afghanistan have resulted in a sustained growth in demand.
Capacity Expansions- a Test for APCMA In the past two years the listed cement sector has outperformed the market by approximately 40%. After going through rough times cement manufacturers formed an alliance (cartel) and focused their attention on operational efficiencies in the early years of this decade. This coupled with improving economic fundamentals, enabled the industry to turn around with chances of posting profits of Rs. 50 billion in FY04. Due to these record profits and rising demands, the sector is once more going for expansions. But the recent spate of expansions is different from the situation that occurred in the second half of the 90’s Following are the reasons for this assumption:
22
Cement Industry •
Although there will be hiccups in the cartel as each competitor aims to get more quota to utilize its expanded capacity effectively, but the of the cartel have seen enough hardships to through up the alliance.
•
Interest rates have come down drastically as compared to the 90’s. It is not likely that short term interest rates would go up to double digits as in the 90’s. Currently the top cement companies can borrow at 1-2% plus 6month KIBOR rates (currently at 4%) (Cement update October 2004)
•
The cement companies are armed with much cheaper source of fuel as compared to 90’s. Though they are importing higher quality coal from South Africa but if hard pressed they can shift to local low quality coal.
•
The surge in cement exports to Afghanistan have acted as a cushion for the industry which in 90’s relied solely on the local market.
•
The economic fundamentals are stronger as compared to the nineties. And growth momentum is likely to continue in future and local demand growth is likely to settle down close to GDP growth rate in the long run. 90’s expansions were financed through loans at higher rates but recent ones are profit financed on low cost and huge cash basis (currently generated profit)
•
•
The companies have learned cost efficiencies through the hardships of the nineties.
•
Local demand side is very positive due to house financing, fiscal space to the government for infrastructure projects after quitting IMF and finishing of deficit targeting.
23
Cement Industry
24
Cement Industry
Per Capita Consumption of Cement Cement is one of the basic ingredients for the development of a country. Its per capita consumption is an indicator of economic activity in the country. Unfortunately, Pakistan is trailing behind all other developing countries in the region with lowest per capita consumption of cement.
Annual Consumption of Cement Countries Million tons China 512.0 Taiwan 20.8 Malaysia 11.5 Sri Lanka 2.2 Indonesia 19.3 India 85.0 Pakistan 9.1 (IRS) Annual Cement Consumption 600 500 400 MT 300 200 100 0
China
Taiw an
Srilanka Malaysia Indonesia
India
Pakistan
Countries
In Pakistan the per capita consumption was only 76kg as compared to 960kg in Taiwan and 530 kg in Malaysia in the same year. This was even higher in Sri Lanka at 118kg. This 25
Cement Industry low consumption resulted manufacturing capacity.
in
under
utilization
of
Per Capita Consumption of Cement Countries Kg Taiwan 960 Japan 603 Thailand 600 Malaysia 530 China 450 Egypt 334 USA 261 Philippine 202 Indonesia 140 Sri Lanka 118 India 99 Pakistan 2000 76 Pakistan 2003 120 (IRS)
Per Capita Consumption of Cement 1000 900 800 700 600 Kg
500 400 300 200 100 0
Taiwan
J apan
Thailand
Malaysia
China
Egypt
USA
P hilippine
Indonesia
Srilanka
India
Pakistan
Countries 26
Cement Industry
Exports to Afghanistan Export of cement to Afghanistan is another reason for the overall increase in exports. Due to this the proportion of exports in cement sales has now increased to 8 percent from the previous 4 percent. This proportion is expected to improve further up to 17.5 percent by FY08. It is believed that cement exports will touch to 3 million tones per annum. The reasons for this estimation are increasing construction activity in Afghanistan and lower competition from Iran.
Cement Exports (Value in 000 US$) Cement Types 2000-01 Cement White 0 Cement Clinkers 0 Cement Portland 777 Others 2
2001-02 14 0 3180 2
TOTAL
3194
779
2002-03 0 0 10737 0 10737 (Industry in Focus Ismat Sabir)
Value in 000 US$
Cement Exports Cement White Cement Clinkers Cement Portland Others
12000 10000 8000 6000 4000 2000
TOTAL
0 200001
200102
200203
Years
27
Cement Industry Donors had pledged grants to Afghanistan in excess of US$ 3 billion. Early estimates had put the figure of annual investment in Afghanistan at US$1 billion with 15 percent (US$ 15 million) share committed for cement consumption. This represents very bright prospects for construction activity in Afghanistan and the results are evident from the demand for exports materializing from Afghanistan. Iran is the major competitor of Pakistani cement in Afghanistan. Due to the cheaper cement, the market share of Iranian cement was much higher than Pakistani cement. Previously, Iranian cement prices were much lower, i.e., US $32 per ton as compared to Pakistani price of US $70 per ton. However, Pakistani exporters have now become more competitive and are exporting better quality cement at US $30 per ton. Moreover, Iran was initially exporting 10 percent of its production to Afghanistan, but with an increase in its domestic demand, Iran is now concentrating on its domestic market. This is likely to improve the market share of the Pakistani cement. In addition to Afghanistan, Sri Lanka, Bangladesh, Middle East, and Vietnam are being explored as new destinations for cement exports. Industry sources indicate that there is a potential to export 2 to 3 million tones per annum of cement to these countries.
28
Cement Industry
H. PROFILE OF PAKLAND CEMENT Pak land’s corporate philosophy is based on the concept of excellence. This has enabled the company to maintain its superiority in product quality, resource management and operational systems design. Pak land commenced business in 1976by establishing a land development company by the name of Pak land housing (PVT) limited. This company is now Pakistan’s largest land developer in the private sector. As an organization dedicated to the industrial and economic development of Pakistan, Pak land looks ahead to the future with the same spirit of commitment that has characterized its first major industrial venture- Pak land cement limited.
PAKLAND CEMENT
Achieved rated capacity with in six hours of commissioning
Produced over 100% annual rated capacity in the first year of ope
Country’s first cement plant to have computerized quarry plann
Computerized quality assurance program for uniform high quality Built and commissioned in record time of 2.5 years
Optimum plant operations achieved with only a workforce of 1
Process Features at Pak land The selection of the manufacturing process fro cement determines its quality. The process varies from wet to dry methods of preparing raw materials for burning. Following are the steps involved in the manufacturing of cement at Pak land: • •
Latest process design technology Suspension preheated type of dry process system 29
Cement Industry • • •
Specially designed sampling station Latest pre homogenizing techniques Advanced technology with central control station
Sophisticated Technology Sophisticated technology available at Pak land can be highlighted in the following features • • • •
Central control technology to operate and monitor the whole process line from a single station Latest dust suppression and pollution control techniques Uninterrupted electrical power supply Microprocessor controlled X-ray analyzer
Quality Program Quality assurance in the cement manufacturing industry is not limited to discrete test on the end product. It is a continuous process, covering all stages of production, starting from quarrying of raw materials to the packaging of finished product. The quality assurance program has the following parts • • • • •
Clearly defined objectives Manpower training Sophisticated equipment Multiple especially designed sampling stations Frequent sampling
Growth of Pak land Cement At Pak land, it is the management’s aim to set challenging targets and then provide the atmosphere and the infrastructure to achieve this. An ambitious program was undertaken in 1987-88 to optimize the production capacity to 1500 TPD (tons per day) from the original 1000 TPD. Thereafter a further expansion was planned to more or less double the capacity of the plant which also has been achieved. Efforts are underway to further enhance the capacity of this plant to 30
Cement Industry 3000 TPD. Consultants have been approached and design specifications are under preparation.
31
Cement Industry
I. CEMENT CARTEL-ALL PAKISTAN CEMENT MANUFACTURERS ASSOCIATIONS (APCMA) Before private investment came into this sector the cement industry had only the state cement corporation of Pakistan (SC). But in Zia’s era after privatization and the boom of the 80’s many cement factories sprung up resulting in fierce competition and price wars. It continued in the 80’s but with the recession setting in during mid and late 90’s the cement manufacturers were hard pressed for survival and this led to the formation of APCMA - ALL PAKISTAN CEMENT MANUFACTURERS ASSOCIATION. The duty of this cartel is not to regulate price but to regulate quotas. The of this cartel call it a “business arrangement” but outsiders call it a cartel.
J. MAJOR PLAYERS 1) Attock cement 2) Best way cement 3) Chakwal cement 4) Cherat cement 5) D.G. Khan Cement 6) Dadabhoy cement 7) Dadex cement 8) Fauji cement 9) Fecto cement 10) Gharibwal cement 11) Javdan cement 12) Kohat cement 13) Luckey cement 14) Maple leaf cement 15) Mustehkum cement 16) Pakistan slag cement 17) Dewan (Pakland) cement 18) Saadi cement 19) Zeal pak cement 20) Essa cement 21) Dandot cement 22) Kohat cement 32
Cement Industry
K. FACTORS AFFECTING DEMAND CONDITIONS Following are the main factors affecting the demand of cement: • • • • • •
Growth in housing sector Increase in exports of cement Infrastructure development Low per capita consumption of cement Wars Disasters
Growth in Housing Sector Following are the reasons for the growth in housing sector • • • •
Liquidity in the market has increased a lot by the introduction of new house finance schemes. Remittances from overseas Pakistanis have increased leading to the in crease in expenditure of house building by the consumers. The banking sector is loaded with liquidity. The government of Pakistan has launched several policies to this sector like o National housing policy to regularize kachi abadies. o Tax incentives were provided to in the form of tax deductibility of mark up to loan borrowers. o The limit of property income with holding taxes were enhanced from 0.1 million to 0.2 million, to encourage documentation. o Concessionary import duty of 10% on the import of machinery. o Reduction in central excise duty (CED) on cement. o Ease in issuance of no objection certificates (NOC) o Increase in budgetary allocation for the public sector development program (PSDP) by the government of Pakistan. 33
Cement Industry o GHAR AASAN and SHANDAR GHAR schemes were introduced. •
Several measures have also been taken by the State Bank of Pakistan o SBP first increased the limit of loan to house financing and then removed it from March 19, 2005. o Debt to equity ratio was changed from 70:30 to 80:20. o The maximum loan period was enhanced from 15 year to 20 years. o The foreclosure law was amended to allow the banks to repossess the properties without recourse to court.
Growth in Exports • • •
Growth of exports of cement have increased from 4% to 8% Cement exports are expected to touch the 3million ton mark. Following are the reasons for the growth in exports of cement o Construction activity is rapidly rising in Afghanistan. o Lower competition from Iran even with its lower prices and easy accessibility the reason for this change is increased domestic demand in Iran due to the reconstruction in earth quake affected areas. o Export rebates of 12.5% o Competitive prices due to export rebate, fuel efficiency and low transportation costs.
Infrastructure Development Several public sector development projects (PSDP) have been started by the government of Pakistan like Gwadar Port, highway and motor way projects, building and reconstruction of dams and Kohat tunnel etc. 34
Cement Industry
35
Cement Industry
Low Per Capita Consumption of Cement As stated earlier the per capita consumption of cement in Pakistan has been very low 76 kg as compared to a world average of 245 kg. This means that there is a great requirement of cement if the growth picks up a bit, as is evident by the present scenario.
Wars Wars and reconstruction activity in countries like Afghanistan and Iraq have increased the consumption of cement many folds. The huge developmental expenditure by their governments and the inflow of aid from developed countries has also increased the demand for cement.
Disasters Earth quakes in Iran and tsunami in Far East led to a direct increase in the demand for cement so that these countries could develop and provide shelter to their people.
L. FACTORS CONDITIONS
AFFECTING
SUPPLY
Following are the factors affecting the supply of cement: • • • • • •
Availability of raw materials Imported machinery Fuel conversion Government duties Export distribution Low interest rates
Availability of Raw Materials Pakistan in fortunate enough to have vast amount of natural resources as far as the cement industry is concerned. We have rich deposits of limestone and gypsum some of the basic raw materials required to manufacture cement. 36
Cement Industry
Imported Machinery Machinery in Pakistan is all imported which makes the quality of our cement much better than the quality of cement in the region but it makes it expensive and the industry has become too much dependent on imports.
Fuel Conversion The cement industry has converted from very unreliable resource of power and heat i.e. furnace oil to a more cheaper and easily available gas and then to even cheaper coal.
Government Duties The government has reduced the CED from Rs.50 to Rs.37.5 and the sales tax has been reduced from Rs.72 to Rs. 34.5 thus reducing the price and increasing demand and supply.
Export Distribution The distribution channels for the exports of cement are not well established. It takes Pakistan 3 days to fill a ship with cement of export and only 6 hours to India to fill a ship thus increasing our lead time and reducing our supply in a highly competitive global market where cement is short in supply; where as India is able to fill 12 ships we are able to fill only one.
Low Interest Rates The cement industry is able to borrow at 1-2% interest +KIBOR (Karachi inter bank open rates) thus earning a lot more than paying in interest expenses.
37
Cement Industry
EMERGING TRENDS WORLDWIDE High degree of mechanization and capacity to handle large volumes has lowered the run-of- mine costs. Detailed geological explorations and technological advances made in geo-statistics and interpretations now make it possible for a clearer understanding of structures and working of limestone, balancing the economics, deploying large earthmoving equipment, handle large volumes of overburden and exploit residual threshold deposits. This has created opportunities for mining engineers, manufacturers of equipment and consultants and a definite need for technical and operational excellence for survival.
CRITICAL SUCCESS FACTORS These are some of the factors that were cashed on in time to bring success to the cement industry of Pakistan: • Government of Pakistan is planning to invest huge sums of money to the infrastructure development in the country. Building of massive infrastructure projects such as building of dams, highways and Gwadar port city are examples. • The U.S invasion of Iraq and Afghanistan has opened a whole range of new opportunities for the cement manufacturers in Pakistan to export. • The recent conversions to low-cost coal powered plants from the previously oil powered ones have reduced the costs of production • The lower corporate interest rate has led to the industry expanding the production units and thus increasing the capacity. • The disasters such as Tsunami, which has inflicted several countries and other countries that suffer natural disasters, need cement to rebuild their countries from the devastating after-effects. This has increased the cement demand even more. • The cement cartel made up has led to the demandsupply manipulations by the manufacturers and resulted in massive gains for them
38
Cement Industry
39
Cement Industry
GOVERNMENT’S ROLE The Government of Pakistan has taken varying stances on different issues regarding the industry:
Taxes This industry has to pay different taxes whose cumulative impact on prices make them more uncompetitive compared to the other countries in the region. The industry has to pay the Central Excise Duty as well as the Sales tax of 15% on the proposed price of the cement bag. A comparative study regarding taxes on cement indicates that as against Pakistan where the taxes on cement are 37%, it is nil in Iran, 7% in Thailand, and 10% in Egypt, Philippines and Indonesia and 18% in India. As a matter of fact, Pakistan has one of the highest tax rates on cement in the Asian region.
Licenses This industry is again one of those industries that has benefited from the different political leaderships in the economy. The different governments kept on granting licenses regardless of the actual demand. This has led to the industry being working under-capacity for most of the time.
Cement Cartel In 1998, APCMA made a cartel of all cement manufacturers who affect the cement prices by allocating the quota for production for each day. This cartel is overtly ed by the government for the betterment of the industrialists.
Export Incentives The export potential of this industry has not been fully exploited; however, the incentive for the exporters is that there is no GST applied on it, so the prices of export products are lower compared to the local market. The government, however, has failed to provide for adequate port facilities to the exporters to ease the entire process. 40
Cement Industry
COMPARISON OF CHINESE AND INDIAN CEMENT INDUSTRY CHINESE CEMENT INDUSTRY Overview China is expected to remain the world’s most populous country through 2040. Its gross domestic product (GDP) has averaged growth of more than 9 percent each year since liberalization and economic reforms began in the late 1970s. In 1985, China became the World’s leading producer of cement and today produces over one-third of total global output. While China’s cement industry is relatively insulated from a global perspective, changes are underway to improve product quality, management practices and profitability, including further opening the sector to participation by international players.
Organization of the Industry In 2000 and 2001, the Chinese government decentralized its industrial ministries, and the organizational structure of the cement industry remains in a state of flux.
Ownership A shrinking number of cement companies (now about 24 percent) remain state-owned, while a growing number (about 3 percent) are foreign invested enterprises (FIEs). Collective enterprises for over 50 percent of companies while 10 percent are privately owned. There also is a trend toward consolidation and mergers.
Production China has been the world’s leading cement producer since 1985. The United States Geological Survey estimated that China produced about 36 percent of the world’s total. 41
Cement Industry Combined, the next three largest producers—the United States, India, and Japan—produce less than 20 percent of the world’s cement.
Cement Plants The estimated number of Chinese cement plants ranges from 8,000 to 9,300, although the actual number is uncertain due to the fragmented nature of the industry, the small size of many plants, the fact that some plants exist illegally, and data reliability issues.
Cement Markets China consumes about 35 percent of the world’s cement, a figure expected to rise to about 40 percent by 2010.
Domestic Demand Growth in Chinese cement production is due to the construction boom accompanying high GDP growth rates. Forty percent of China’s cement is now used for basic infrastructure construction.
Prices Low quality cement is oversupplied and cheap, while high quality cement is rarer and more expensive. Profit margins for most cement producers hover near zero.
Transportation Because cement is a bulk commodity, transportation costs are a significant component of the industry’s cost structure. Foreign investment in bulk cement storage and transportation facilities is now strongly promoted.
42
Cement Industry
Trade China is the second leading cement exporter in the world, ing for about 17 percent of total world cement trade. Exports of cement dramatically exceed imports, about 5 million tones The United States is the largest market for Chinese cement, ing for 42 percent of trade.
INDIAN CEMENT INDUSTRY Overview 1. Indian cement industry dates back to 1914 - first unit was set-up at Porbandar with a capacity of 1000 tones 2. Currently India is ranked second in the world with an installed capacity of 114.2 million tones. Industry estimated at around Rs. 18,000 crores (US $ 4185 mn) 3. Current per capita consumption is 85 kgs. as against world standard of 256 kgs 4. Cement grade limestone in the country reported to be 89 bt. A large proportion however is unexploitable. 5. 55 - 60% of the cost of production are government controlled 6. Cement sales are primarily through a distribution channel. Bulk sales for < 1% of the total cement produced. 7. Ready mix concrete is a relatively nascent market in India
43
Cement Industry
Structure of the industry Major cement plants • • • • • • • • • • • •
Companies : 59 Plants : 116 Typical installed capacity per plant : Above 1.5mntpa Total installed capacity : 105 mntpa Excise :Rs. 350/ tonne All India reach through multiple plants Export to Bangladesh, Nepal, Sri Lanka, UAE and Mauritius Strong marketing network, tie-ups with customers, contractors Wide spread distribution network .
Mini cement plants • • • • • •
• • •
• •
Nearly 300 plants Located in Gujarat, Rajasthan, MP Typical capacity < 200 tpd Installed capacity around 9 mn. Tonnes Excise : Rs. 200/ tonne Mini plants were meant to tap scattered limestone reserves. However most set up in AP Most use vertical kiln technology Production cost / tonne - Rs. 1,000 to 1,400 Presence of these plants limited to the state Infrastructural facilities not the best
Sales primarily through the dealer channel
Usage Private housing sector is the major consumer of cement (65%) followed by the government infrastructure sector at 15% down from 20%) < 1% of the cement produced is sold in bulk form unlike US & Japan
Production
44
Cement Industry
• • • •
Excess capacity exists, though some units are sick Cement manufactured through the wet, semi-dry or dry process s for about 7% Dry process s for 93% of the installed capacity Dry process replacing wet process as it is space saving energy efficient and economical
Prices • • •
Price fluctuations high Essentially determined by demand Prices also vary with grades
Players
• • •
Over 370 companies in the organized sector However, industry dominated by 20 companies who for over 70% of the market Individually no company s for over 12% of the market
45
Cement Industry
Concerns •
Cement industry going through a consolidation phase in the last few years
Transportation • •
Transportation costs high - freight s for 17% of the production cost Road preferred mode for transportation for distances less than 250kms. However, industry is heavily dependant on roads as the railway infrastructure is not adequate - shortage of wagons.
Capacity additions • •
•
Acquisitions have been the mainstay of the business Regional imbalance resulting in cross regional movement limestone availability in pockets has led to uneven capacity additions Capacity additions have slowed down
Industry inputs • • • • •
Highly capital intensive industry Nearly 55-60% of the inputs controlled by the government Facing problems due to power shortage Coal availability and quality affecting production Mini plants realization of revenue lower than large plants, survival difficult
46
Cement Industry
RECOMMENDATIONS These are the recommendations that can be implemented in the cement industry to reinforce its success: • There are many players in the industry that are not functioning efficiently. There needs to be certain minimum requirements that should be fulfilled by the manufacturers. The government can give deadlines to the manufacturers for implementing those measures, which if not implemented, will lead to the closure of the companies. These minimum requirements can be conversion to low-cost coal powered plants. •
The government can initiate more infrastructure projects to develop the country and, in turn, developing the industry.
•
The industry is dominated by a few giants along with relatively smaller players. Thus, these giants need to get involved into more research and development to come up with new varieties of cements, different production methods and other such innovations.
•
Just as the transport sector of China uses cement in road construction rather than asphalt, Pakistan can also implement the same. With more and more road development, the industry would also benefit.
•
Although the manufacturing plants and machineries are imported from other countries, there is not much emphasis on the foreign investment in this line. The industry in specific and the country at large stand to gain from the foreign investment and the transfer of 47
Cement Industry technology gains to be made. However, this issue needs to be taken up seriously by the government. •
There should be more reductions in the government levies to make the industry more competitive in the export market.
•
Like many other competitive industries in Pakistan as well as the cement industries of other countries, the manufacturers and the APCMA need to have a web presence that is highly updated. This can bring in more investors as well as customers to this sector.
•
It takes around three days for a single ship to be loaded with cement for export. If this ship loading/unloading time could be reduced, we would be better able to handle the exports more quickly.
•
There should be easy and quick procedures at the ports to facilitate the cement exporters with the process.
48
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