Cement industry of pakistan

1. 1. CEMENTINDUSTRY KHUSHBAKHT SUHAIL WARDA HASSAN SAAD MASOOD AIZAZ

HAQ FEHAM ALI
2. 2. FROM THEN TO NOW 4 cement factories - Capacity of 0.5 Mln tons 1947 14
Cement plants 2.5 Mln tons The industry was nationalized 1972 The State Cement
Corporation of Pakistan (SCCP) was established Cement industry was deregulated (with
establishment of 7 plants) GDP growth rate of 6.5%, high imports of cement1985-86
Process of privatization occurred in 1991 Increased production capacity from 16 Mln tons in
20002000-10 to 44 Mln tons in 2010
3. 3. SIGNIFICANCE OF INDUSTRY Direct and Indirect Taxes Rs 30.0 Million Employment
(Direct and Indirect) 150,000 (Approx.) 5th Largest exporter of the world Cement exports
ranked 10th in the major export list of Pakistan Major Export Markets Afghanstan India
African Countries Middle Eastern Countries Iraq
4. 4. Year Per Capita Consumption2003 75 kg2007 110 kg2011 145 kgWorld average = 270 kg
5. 5. Growth Rate 20% 2.96%1990-2002 2003-2007
6. 6. FIRMSTRUCTURE, STRATEGY AND RIVALRY
7. 7. FIRM STRUCTURE Oligopolistic structure 29 Cement Plants Installed capacity of 44.6
million tons Two Regions Market Share 1. North 80% 12.70% 9.80% 2. South 20% 7.60%
7.10% 5.50% Major Players DG Lucky Maple Pioneer cement cement leaf cement
8. 8. N.W.F.P Mustehkam Kohat Dewan Hattar Askari (Wah) Bestway Cherat Fecto Fauji Askarl
Gharibwal Maple Leaf Pak Cement Lucky Dandot Zaman Pioneer Punjab DG Khan
Balochistan Sindh Attock Pak Slag Dadabhoy Javodan Thatta Lucky Dewan A.C. Rohri Al
Abbas Zeal PakGoing forward, scale of production and plant location will play a major role in
determining the performanceof a company
9. 9. FIRM STRUCTURE All Pakistan Cement Manufacturing Association1. Projecting the
cement industry to the government2. Supplies information about cement industry3. Interacts
for industry problems4. Provides technical information on use of cement
10. 10. FIRM STRATEGY Prices similar No significant product differentiation 90-94% OPC
Production capacity expansion Technology Location of plant near raw materials
Transportation feasibility
11. 11. The TWIST!!! CARTEL under the umbrella of APCMA !!! Operating from over a
decade !!! Under probe of Monopoly Control Authority Cement companies have been
accused of cartelization thrice Fine of Rs. 6.35 Billion in 2009 by Competition Commission
of Pakistan (CCP) Then came price wars prices dropped 26% in one year Harmful for
small manufacturers
12. 12. AROUND THE WORLD Cement Cartels present in :1. Pakistan2. India3. South Africa4.
Bahrain5. USA6. China
13. 13. Cement Cartels India 20 companies control 70% of the market Price cartel prices
have risen by over 40% over the past year. Cement cartel pressurized the Indian

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Government to impose non-tariff barriers on imports of cement to reduce supply from

Pakistan. INDIA - 300 million tonnes operating at near full capacity.
14. RELATED ANDSUPPORTING INDUSTRIES
15. CONTENTS Housing & Commercial Plotting ( Construction Sector) Government
Projects Shipping Industry Packaging Industry Mining & Quarrying Industry Transport &
logistics
16. Housing & Commercial Plotting 40 % of the Cement Demand lending of 55 PKR billion
to the private sector 950 billion in the MTDF Housing Sector makes up to 50 % of the
Construction Sector Rising trend of vertically rising structures across the world.
17. Government Projects Roads, Dams, Canals, Bridges, underpa sses Significance of
(PSDP) Maintenance Projects- roads, highways, after rain spoils. Natural Calamitiesabnormal rise to demand industry- new housing schemes for affected
18. Shipping Industry High cost is still a barrier in exploring the right potential Indian cargo
that loads up in 6 hours, here we take 3 days !! Our outreach is up till South Africa Russian
Market unreachable Prices gets uncompetitive as soon it reaches the docks of USA
19. Packaging Industry Polypropylene/ Polyethylene bags Growth of 15% compared to the
world growth of 8 % Packaging is of due importance for the cement to remain of good
quality Plastic bags & Paper bags Two main companies that supply plastic bags, shortage
of 12 million bags.
20. Mining and Quarrying Industry Rich source of minerals and raw materials Mining and
quarrying sector direct demand from Cement Sector Low skill allow high employment
Development of other kinds of Cement would allow us to utilize much of untapped area in
this sector Mining in return has allowed us to discover huge deposits of gypsum, limestone,
etc. that are essential in the production of cement.
21. Transport & Logistics Logistics Russian high price tag opportunity Not yet captured
Russian market Local transportation Pakistan( $ 8/ton), India ( $ 3/ton), Iran far more
competitive Transport Trucking Sector primarily depends a lot on Cement industry Rail
transportation efficient yet of same cost Heavy Bulkers also earn revenues in large orders
22. Transport Cont 20 % of cement cost goes under transportation - India working to
reduce its existing 7 % cost element. Cement factories are spread over two broad regions Southern region is relatively economical Northern region caters Afghanistan, Iran and closer
areas Inland freight subsidy expected to reach 35 to 50 % of the overall subsidy by end of
2011.
23. FACTOR CONDITIONS
24. RAW MATERIALSThe raw materials required forCement manufacture: Limestone (7580%) Clay(15-20%) Gypsum (5%) Iron Ore Pakistan has immense reserves of various
minerals.
25. TYPES OF CEMENT Ordinary Portland Cement (OPC) Sulphate Resistant Cement
(SRC) Blast Furnace Slag Cement (BFSC) Slag Cement
26. STEPS FOR THE MANUFACTURE OF CEMENT Quarrying and crushing Blending and
storage Raw milling and homogenizing(Uniform Quality of raw materials) Burning Cement
Milling ( adding Gypsum) Quality Assurance Packaging and cement despatch

27. 27. Sources of Energy60-70% is the cost of energy in the production of cement Coal Gas
Oil Furnace Electricity
28. 28. Furnace oil Diesel Coal ElectricityFinancial Year (Rs./Ton) (Rs./Litre) (US$/Ton)
(Rs./KWH) Jan-11 54,600 78.74 140.00 7.15 Upto - Dec- 53,670 74.72 105.22 6.63 2010
2009-2010 46,692 69.63 92.05 5.23 2008-2009 39,900 61.24 105.64 5.23 Source: APCMA
Input prices
29. 29. At present most of the cement companies have switched to coal or gas as their basic
fuel Cost of cement production per ton by ; furnace oil- Rs. 2083 coal-Rs 868 Initially
90% of coal requirement of Pakistan cement industry were being met by imports However
the price of coal in the world market soared from $92.5 per ton to $140 per ton from 2010Jan 2011 .
30. 30. Because of this, firms are now relying on local coal reserves; example Dandot Cement
Limited acquiring 70% of the coal from Quetta. Load shedding of gas is another major issue.
Domestic consumption is very high. The companies were relying on WAPDA for electrical
supply but now the companies have their own electricity generation plants due to the
problem of load shedding. Management considering cheaper fuel sources such as RDF and
Waste Heat Recovery Plant.
31. 31. Reasons to Import Coal The production of one tonne of cement consumes, nowadays,
an average of 3400-5000 MJ fuel energy. 50% in clinker burning, 20% as sensible heat in
the Pre- heater exhaust gas. 3%taken away by clinker. 14% heat of cooler exhaust gas, 11%
loss as radiated heat and 1% others. Pakistan has fourth-largest coal reserves in the world
but it is importing 2.5 million tones of coal per annum for the cement industry. Local coal
contains 6% of sulphur which is not suitable for cement industry. However, the imported coal
contains 1% of sulphur.
32. 32. Fuel Alternatives The cement industry may go in for used tyres to meet the 40% of fuel
requirements of the industry Like Lucky Cement and DG khan. This method is called
Refused Drive Fuel project Recycling of the waste by making it in bundle shape and then
these bundles would burn in the kiln. Zero pollution and environmental problems Pakistan
can import sulphur washing plants from Europe Waste heat Recovery Plant set up by
Lucky and DG cement. It utilizes waste heat to generate electricity thereby cutting costs and
reducing dependence on WAPDA.
33. 33. Pulp, paper and cardboard Plastics Packaging Textile wastes Rice husk Meat bone
meal and animal fat Waste oil Mixed fraction from municipal wastes Scrap wood
34. 34. MACHINERY Machinery is imported Various components are also imported as the
need arises. R&D when it comes to setting up or manufacturing plant in Pakistan is absent.
Lucky cement has no R&D department and considers R&D to be useful only when product
innovation is possible. As cement is a standard product with almost no innovation possible ,
standardized machinery and equipment are used to produce it - Mentality of the people in
cement industry
35. 35. LABOUR Cheap labor is available, low labor cost is an advantage Skilled, Unskilled
ratio is 2:3 as determined by the research More than 150,000 people are employed directly
or indirectly by the industry Lucky Cement Directly employees 5000 people Engineers from
NED and NUST

36. 36. LABOUR Extensive labor training is done. Lucky Cement, Dandot Cement Limited hold
training sessions for employees. Foreign experts are called in to provide training Technical
staff is needed to operate the complex plant machinery Skilled Unskilled Electrical
Engineers Packaging Mechanical Engineers (Kilns Loading & Unloading Operators,
Crushers) Tanportation to Dealers & Plants Chemical and Civil Engineers Trolley men,
vendors Masters in Busniess Helpers Administration
37. 37. Technology Until 1970- firms were based on Wet Process/Semi dry technology. However
as it was more expensive and required greater amount of energy source. After 1980- Dry
Process. Presently, 85% of installed capacity is based on the dry process. Lucky Cement
using computerized control system advanced state of the art sophisticated equipment like
Distributed Controllers, PLCs and online X-ray Analyzers- Quality Control Maple Leaf
Cement through its R&D has reduced the emission of NO from 4.5 Kg/ton to 1.5 Kg/ton in
order to reduce the pollutants emitted.
38. 38. DEMAND CONDITIONS
39. 39. Factors That Drive Local Demand Increase in Population Urbanization Availability of
credit / decrease in interest rates Political Stability Economic Stability (Cyclical) Seasonal
Variations
40. 40. Major Sectors of Local Demand The per capita consumption is 145 kg. The local
demand consists of Housing sector 40% of demand Private construction sector
Government Development Expenditures Dams, roads etc
41. 41. LOCAL DEMAND Capacity utilization 75% . QUOTA SYSTEM Local consumption =
18.06 million tons for the first ten months.. 6.76% lower than 09/10 Reasons Minimal
government expenditure Floods Economic slowdown
42. 42. EXPORT DEMANDJuly 2010 to April 2011 7.6 million tonsJuly 2009 to April 2010 8.8
million tons Decline of 15%
43. 43. EXPORT DEMAND The major countries affecting Pakistani exports are Afghanistan
China India African Countries Saudi Arabia Iran
44. 44. China Huge competition for Pakistan Current production = 1.7 billion tons Excess =
300 million tons Chinese exported $160 million worth cement in first quarter of FY11
Demand in China is also expected to fall due to property tightening measure by the govt.
45. 45. Saudi Arab Restrictions on exporting removed Cost of production lower due to low oil
prices Paki cement companies face high competition with prices charged by SA
46. 46. IRAN During the period March-Jan 2011 Iran has exported 7.424 million tons of cement
as compared with Pakistans exports of 7.656 million tons. Irans exports have increased by
61% while Pakistans exports have declined by 13%. 55 cement plants in Iran. Pakistan has
only 27.
47. 47. SUPPLY GLUT ALL OVER There is decrease in international demand and a supply glut
in all cement producing nations like ourselves A cold war brewing between cement makers
to utilize their excess capacity FOB prices hauled lower Average FOB price = $ 52/ Ton
However Lucky said $58/ton
48. 48. MAJOR EMERGING AND EXISTING MARKETS
49. 49. African Nations High cement demand due to Strong GDP growth Huge
Governmental Infrastructure Projects Energy resource exploration Growing middle class

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population Many Pakistani companies targeting this region TANZANIA 10% demand met
by Pakistan) African cement manufacturers lobbying to impose 35% import duty
50. UAE Currently 40 Million tons capacity and demand only 14 Million tons. Higher
demand in 2008 encouraged construction of new plants. Since demand has fallen ,
Pakistans exports to UAE have fallen drastically.
51. Afghanistan Biggest importer from Pakistan Massive reconstruction in Afghanistan
2008-2009 $150 million 2009-2010 $200 million 2010-2011 (First six $110 million months)
Increase of 23%
52. AfghanistanISSUES Transit fee doubled From Rs. 9000 to Rs. 18,000 Gumrak issue
APCMA asks to introduce Supervised Clearance System again
53. NEW DESTINATIONS IRAQ demand double of production SIRILANKA war torn
54. India 2008-2009 $35 million 2009-2010 $40 million 2010-2011 (First six $12 million
months) Sales through land to India fell by 36% Sales via sea to India fell by 17.27%
Clinker exports declined by 34.57%
55. Reasons Delay of renewal of licenses by Bureau of Indian Standards (BIS) Between
2007-08 22 companies were granted licenses Licenses expired applications were
pending since 6 months Recently approved Refusal of Indian railway authorities to
interchange loaded wagons They want special BIS printing which cost additional Rs. 400
per ton
56. Does not allow exports through Wagah Border by road. Refuse to accept certificates by
Pakistan Quality Control They want third party Recent trade fair in New Dehli Our firms
got smaller stalls in far away corners Visas delayed and rejected without notifying reasons
57. MFN STATUS India granted the MFN status to us in 1996 But they dont treat us like it
We treat them like MFN but have not granted the status yet Trade heavily skewed towards
India India exports to Pak = $ 2 billion Pak exports to India = $ 400 million On April 29th a
Joint Working Group was established with the representatives of the two countries met to
reduce non- tariff barriers Also Pakistan agreed to grant India the MFN status in April
Pakistani Cement in India costs Indian Rs 30 less than Indian cement Thus our cement
good for India !!
58. Governmental Role 80% plants in the north Those who could not export loss of 10
billion last year Those who could 4 billion profit High inland freight costs for northerners
Govt promised to provide 35% inland freight subsidy to export by sea Not paid yet 8
month lapse
59. Governmental Role Heavy tax structure Federal excise duty Rs 700/ton Special
excise duty 2.5% (recent inc of 1%) General sales tax 17% 5% on utilities 30% of
total cost = TAXXXXX = Rs87/bag APCMA demanded not to be charged so much tax!
60. THUS TAX EVASION Miss declaration of production Jhelum-based unit Tax payed
on 2000tons Real production = 100,000 tons Profit of Rs. 200 million in 1 month
61. High Cost Of Production Recently 4 units closed !!! Rs 340- Rs 355 per bag
Manufacturers cant pass on high cost to consumers due to 1. Surplus Capacity 2. Increased
Competition
62. RECOMMENDATIONS Coal fired power plants should be imported from China like
ZEAL PAK Import sulphur washing plants from Europe. Government should fulfill its

promise of giving subsidies. Measures should be taken to prevent future influence of the
cartel. Encourage Research and Development Cost saving.
63. 63. RECOMMENDATIONS Reduce Indirect Taxes, which are one of the highest in the
world. Efforts to maintain trading through Wagah Border and solve tariff problems with
Afghanistan