5/14/2016

CementinggrowthProspectsforPakistan'scementindustry

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Cementing growth Prospects for

Pakistan's cement industry
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Feb27,2016

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#1

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CementinggrowthProspectsfor
Pakistan'scementindustry
ghazi52

ForPakistan'scementindustry'sgrowth,muchwilldependonhowthe
economyperformsandthegovernmentresponds.

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http://defence.pk/threads/cementinggrowth%E2%80%93prospectsforpakistanscementindustry.423685/

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CementinggrowthProspectsforPakistan'scementindustry

IllustrationbyCreative
Unit.
Theyear2015wasabusyoneforPakistanscementindustry.Notonly
didlocaldemandforcementincreaseby12%inoneyear,butfour
cementcompanies(Attock,Cherat,DGCementandLuckyCement)
announcedtheirintentiontoincreaseproductioncapacity.Whenthese
plansreachfruition(probablyinthenextyearorso),theywilleffectively
increasetheoverallproductionofcementby7.7milliontonsfromthe
current45milliontonsto53milliontonsperannum.
Theincreaseindemandandplannedincreaseinproductioncapacity
havemanyimplicationsfortheindustryhowever,tounderstandthem
fully,itisessentialtostepbackandexaminethedynamicsofthissector.
Despitehavinganextremelywelldevelopedcementindustry,Pakistans
percapitacementconsumptionwhichstandsat140kgs,isthelowestin
theworldtheglobalaverageis400kgspercapita.Pooreconomic
growth,lackofgovernmentinterestininfrastructureprojectsandhigh
realestateandhousingpriceshavekeptlocalcementdemandfairlylow
andformanyyears,cementmanufacturers,especiallythosebasedin
thesouthregion(SindhandBalochistan),havefocusedmainlyon
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exports.Manufacturerswhoseproductionfacilitiesareinthenorth(KPK
andPunjab)haveshiedawayfromexportsduetoprohibitivelyhigh
costsofinlandtransportation.
However,inthelastsixyears,theexportmarkethasshrunk,sothat
whereastheindustryexportedabout10.98milliontons(26%ofitstotal
productioncapacity)in2008,thefirstfivemonthsofFY201516saw
thisnumberdropto2.56milliontons(amerefivepercentoftotal
productioncapacity).Thisreductioninexportswasduetotwomajor
factors.One,prohibitivelyhighsalestaxandexciseduties(bothfederal
andprovincial)makethepriceofPakistanicementuncompetitiveinthe
internationalmarketandtwo,thedryingupoftraditionallythrivingexport
marketssuchastheUAEandSouthAfricawhichhavenowbuiltup
theirowncementproductioncapacitiesandnolongerrequirecement
fromPakistan.Infact,SouthAfricanmanufacturersrecentlywenttothe
extentofpersuadingtheirgovernmenttoimposeantidumpingdutieson
PakistanicompaniessuchasAttock,Bestway,DG,andLuckyinorder
toprotecttheirowninterests.
Theimpactoflowerexportshasbeenespeciallysignificanton
companiessuchasLuckyCement,whichovertheyearshasinvestedin
developingtheirownterminalatKarachiportaswellasaninhouse
exportfleet.AminGanny,COO,LuckyCement,putsastatisticalvalue
onthissayingthatwhereasthecompanyusedtodo40%localsales
and60%exportsin2008,todayweexportabout25%ofourproduction
whereasrestofthecementweproduceissoldlocally.
Withthepricesofcoal(thefuelusedincementproduction)indeclinefrom$140
pertonto$70andnowto$52perton,thecostofproducingcementislowerand
thismakesmostcementmanufacturersoptimisticaboutthefuture,although
theyareadamantthatthegovernmentmustreducesalestaxandexciseduties
tomaketheproductevenmorecosteffective.

Itisthereforejustaswellthatalthoughexportshavedwindled,therehas
beenanupsurgeinlocaldemand.TheannouncementoftheChina
PakistanEconomicCorridor(CPEC),a$46billionmegaproject,which
willincludeinfrastructuredevelopmentprojectsacrossPakistanandthe
loweringofrealestatepriceswhichhasledtotheinitiationofseveral
newhousingprojectsarethetwomajorreasonsforincreasedlocal
demand.
MohammadFazlullahShariff,CE,ThattaCement,saysthatabout60%
ofthecementproducedinPakistanatpresentisusedininfrastructure
projects,andthehousingsectoraccountsfortheremaining40%.
However,SyedMuhammadAnwar,CEO,DewanCement,isofthe
opinionthatthereverseistrue.
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Realestateandbuildersareconsuming70%ofcementwhile30%is
usedininfrastructure.
IrfanSheikh,DirectorFinanceandCFO,BestwayCement,tendsto
agreewithAnwarandsaysthatthelionsshareofbusinessiscoming
fromthehousingsector.Thismakessenseconsideringthataccordingto
newsreportsfromMay2015(Source:TheNews),Pakistanfacesa
housingbacklogofninemillionunits,particularlyforpoorand
disadvantagedpeopleandthegovernmenthasannouncedseveral
planstoaddressthisshortfall.
Thiscombinationofincreaseddemandfromhousingandinfrastructure
hasinawayforcedcementmanufacturerstoshifttheirfocustothelocal
market.Some,likeLuckyCement,initiatedmassmediaadvertising
campaignsin2012tobuilduptheirbrandimagenotonlywith
contractorsandbuilderswhoaregenerallythedecisionmakerswhenit
comestochoosingabrandofcement,butalsowithcustomersbuilding
theirownhomes.Others,likeBestway(whichisalsoadvertisingnow),
haveintroducednewproducts,suchasbondingagentsandtilegroutin
additiontotheirexistingcementproductlinestoestablishaUSPofsorts
forthemselves.

EstablishingaUSPisnotsomethingthatcementmanufacturershave
paidmuchattentiontointhepast,andmanystillthinkofcementasa
commodityratherthanaproductwithmarketingpotential,andSheikh
stronglybelievesthatbecausecementhasbeensellingbyitself,
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companieshavesimplynotbotheredwithmarketing.
However,consideringthatcementpricesarenotfixed(theyvary
accordingtoqualityandconsumerperception),localdemandisgoingto
dominateinthefutureandtherewillbeincreasedcompetitionduetoan
increaseinproductioncapacity,thereisnowcertainlyroomfor
companiestomarketthemselves,regardlessofwhethertheychooseto
goforaB2Bapproachortargetendconsumersdirectly.
Onewayoftargetingendconsumersdirectlycouldbethroughbringing
aboutachangeintheSKUs.Atpresent,thecementindustryoffers
loosecementformajorbuildersandcontractors,buttheonlySKU
availabletosmalltimeconsumersofcement(i.e.thoseusingittobuild
personalhomesorforDIYprojects)isthe50kgbag.Althoughsmaller
sizedSKUssuchas25kgand10kgareavailableininternational
markets,localcementmanufacturershavenotventuredinthatdirection
sofar.Areasonwhy,saysSheikhisthecostofthepackagingwhichis
madefromimportedkraftpaperandcostsaboutRs20perbagfor50
kgofcement.
Ifyoureducethepackagingsizetosay25kg,itwouldnotautomatically
reduceyourpackagingcostby50%itmayonlyreduceitbytwotothree
rupees,andthereforeonaperkgbasis,itmaybecomemoreexpensive
topackagesmallerquantities.
AnotherreasonwhycompanieshavenotworkedonnewSKUsisdue
tothefactthatitwouldrequirealargecapitalinvestmenttoacquire
packingmachinesfornewsizes.However,asthePakistanimarket
develops,thismaybecomeaviableandnecessaryinvestment.

Marketing,whetherintheformofvaryingSKUsorbyinvestingin
advertising,mightalsobecomeessentialinthefuture,becausedespite
increaseddemandandthesignificantpotentialforgrowth,theindustry
stillfacesmajorchallenges.Firstly,theimportofcementfromChinaand
Iranthroughofficialandunofficialchannelsposeschallengesforlocal
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producersandalthoughthegovernmenthasimposeda20%importduty
onIraniancement,thereisstillagreatdealofsupply.Secondly,
Pakistanicementmanufacturersstillhaveasurpluscapacityofnine
milliontons(mainlyduetothefacttheexportsaredown)thatstillneeds
tobeabsorbedinthelocalmarket
........

(Youmustloginorsignuptoreplyhere.)

!+13050800TPH
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