Exports & International Markets The cement industry of Pakistan entered the export markets a few years back,

and has established its reputation as a good quality product. Deregulation after accession of Pakistan to WTO is expected to open the window of competition from cheaper markets. The recent acquisition of Chakwal Cement by an Egyptian giant, Orascom may be a beginning of such an entry in Pakistan by multinationals. New avenues for export of cement are opening up for the indigenous industry as Sri Lanka has recently shown interest to import 30,000 tons cement from Pakistan every month. If the industry is able to avail the opportunity offered, it may secure a significant share of Sri Lanka market by supplying 360,000 tons of cement annually. In 2007, 130,000 tons cement was exported to India. In 2007, the exports to Afghanistan, UAE and Iraq touched 2.13 million tons. At present, the economies of major countries are facing recession, but Pakistans cement sector is still maintaining a healthy growth. Cement export to India has already slowed after imposition of duty by Indian authorities.

Pricing Another problem faced earlier by the Industry was the high taxation. The general sales tax (GST) was 186% higher than India. The impact of this tax and duty structure resulted in almost 40% increase in the cost of a cement bag (50 Kg). A bag in India earlier cost Rs. 160 as compared to Rs. 220 in Pakistan. In the budget of 2003-04, a duty cut of 25% was permitted to the cement sector with assurance from the cartel to pass on this benefit to the consumers. In 2006, the price of a bag went up to Rs. 430 however in 2007 it has stabilized at Rs. 315 per bag. In mid 2008, cement prices stabilized further at Rs. 220 per bag. The Government has reduced central excise duty (CED) on cement in the budget for 2007-08 in order to boost construction activity. Average industry cost of cement bag/50Kg = Rs.193 Average industry price of cement bag/50Kg = Rs.235

Domestic Demand Local demand in the country for the year 2008-09 is expected to be around 20 million tons. Domestic demand is expected to grow at 13% Capacity growth rate (CAGR) during next five years. Certain factors will also affect the growth of cement industry as well. These are as follows:

Strong GDP growth Higher GDP growth has positive impact on cement demand. Cement demand growth rate was double the GDP growth rate in last three years.

Housing sector growth

Housing projects consume roughly 40% of cement demand. Low interest rates, post 9/11 remittances inflow, and real estate boom have helped housing sector growth.

Government Development Expenditures Government development expenditures count for one third of total cement consumption. Increase in PSDP from Rs.80 bn in 1999 to Rs.520 bn in 2007. Infrastructure development in a region triggers private development projects having even positive impact on cement demand.

Earthquake Rehabilitation

Earthquake losses of October 8th are estimated at $ 5.2bn Reconstruction work will boost construction material demand Reconstruction work is expected to generate cement demand of 4mn tons over next 3-4 years

Announcement of large Dams

Construction of four large dams will generate demand of 3.7mn tons. Bhasha Daimer Dam, Munda Dam, Akhori Dam and Neelum Jhelum.

Per Capita Cement Consumption

Pakistan currently has a per capita consumption of 131kg of cement, which is comparable to that for India at 135kg per capita but substantially below the World Average 270kg and the regional average of over 400kg for peers in Asia and over 600kg in the Middle East. Cement demand remained stagnated during 90s owing to lack of development activities. In 1997, per capita consumption was 73 kg in both Pakistan and India. By 2005-06, consumption in India rose to become 115 kg/capita whereas ours rose to 117 kg/capita. A comparison of few countries in 2005: Bangladesh Pakistan India USA Iran Malaysia EU China UAE 50 kg/capita 117 kg/capita 115 kg/capita 375 kg/capita 470 kg/capita 530 kg/capita 560 kg/capita 625 kg/capita 1095 kg/capita

Challenges to Cement Industry The cost and exports may be affected due to weakness of the US dollar causing coal,

electricity charges and freight prices, comprising 65 to 70 percent of the cost. The PSDP allocation for 2009 has been cut by Rs 75 billion and feared further cuts would curtail cement demand.

Major capacities of countries like India and Iran are expected to come online by FY10 and onwards which are likely to convert these countries from dependent importers to potential exporters. Moreover, this current rising trend is expected to be short-lived due to higher interest rates and inflationary concerns are likely to make it disadvantageous for investors to enter the construction industry. In addition to this, to control real estate prices the government is considering imposing a tax on it. Major General Rehmat Khan, Chairman of All Pakistan Cement Manufacturers Association (APCMA), told Business Recorder, cement industry is getting Rs 24 per ton as day dutydrawback for export of cement which needs to be revised. In view of todays calculation for duty drawback, which works out to Rs 130 per ton, he proposed that duty drawback be increased to Rs 130 per ton ,instead of Rs 24 per ton. Referring to taxation on cement, he said that cement dispatches are subject to payment of federal excise duty @ Rs 900 per ton, general sales tax @ 16 percent, special excise duty @ 1 percent, marking fee @ 0.1 percent of ex-factory price, besides provincial duties and taxes. These taxes come to around Rs 96 per bag which is the highest in the world. Cement, it appears, is being treated as a luxury item for the purpose of taxes and duties. He proposed that the government should reduce excise duty by Rs 450 per ton in the forthcoming budget while the remaining half should be eliminated altogether along with the special excise duty. Besides this, sales tax should not be charged on excise duty paid value. He also proposed withdrawal of customs duty on Pet Coke and remove it from negative list for import from India because cement industry imports Coal and Pet Coke as fuel for production and customs duty on imported coal is zero while on Pet Coke it is charged @ 5 percent.

Important Links: Cement Industry potential to meet Economic challenges Pakistan Cement export up by 65% Cement Profits up 16 times in FY09

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11 Comments Filed under Industrial sector, Pakistan Economy Tagged as Cement, Economy, Industrial sector, Pakistan

11 Responses to Cement Industry

1.

Cement Plant 25 February, 2009 at 12:05 pm I appreciate your blog and I like your cement industry, i found one more website related to cement plant manufactures you can also visit in it, believe it will be beneficial for you http://www.ashokaengineering.com/cement_plant.html

2.

Administrator 23 April, 2009 at 10:52 am Cement imports from Pakistan back to normal New Delhi: Cement imports from Pakistan, which took a hit during JanuaryFebruary on account of a weakening rupee and re-imposition of countervailing duty (CVD), has jumped back to its normal monthly levels of around 60,000 tonnes. Imports had dipped to a mere 11,000 tonnes in January. Imports in long-term are likely to continue at similar levels since imported cement is cheaper by around 10 percent than domestic produce. Cement imports from Pakistan started in September 2007 after India removed import duty while it also did away with CVD and special additional customs duty. These steps were taken to augment domestic demand-supply gap, which now stands largely corrected with addition of new capacities. Since then, Pakistani firms have exported 1.2 million tonnes of cement to India. This does not account for even 1 percent of the countrys annual consumption of over 200 million tonnes. The imported cement is selling at Rs 220-225 a bag (50 kgs) in Amritsar vis-a-vis Rs 245-250 for indigenous cement. Cement import was rendered unattractive due to weakening rupee. Plus, the government had re-imposed the CVD. It was only after Pakistani companies agreed to cut prices by over $10 a tonne to $54 that

import has resumed, said an Amritsar-based importer. Domestic companies raised prices by Rs 3-7 a bag earlier this month. These imports need to conform to quality specifications laid down by Indian Bureau of Standards BIS. As of now, 24 Pakistani cement companies have obtained BIS licence to export cement to India. Though companies in Bangladesh. Bhutan and China also secured BIS licence, import is mainly taking place from Pakistan. http://www.dailytimes.com.pk/default.asp?page=20094\23\story_23-42009_pg5_4

3.

ijaz m 28 April, 2009 at 5:19 am very us eful articles, compliments. seggest fol, 1. immediately after every fortnight data may be placed on this site for : a cement prod/despatches local and exports. b. oil local prod and imports, imports and exports , auto prod , ijaz lahore

4.

Administrator 28 April, 2009 at 4:04 pm Dear Ijaz M, Many thanks for your kind appreciation feedback is always welcome and constructive for our economic compiling. We have looked into your suggestions and will try our best to implement them as soon as possible. How would you like to view the updates at the end of every related article or in the comments section? As weve been posting latest NEWS in the comments section e.g Cement & Textile. Looking forward for more feedbacks from you, Kind Regards

5.

Azam 29 June, 2009 at 6:45 pm AOA! the above article is a very useful and piece of rubby i would say. i usually done every job regarding the research very sharply. but information regarding the industry of cement take so much time. as i m student of MSc. Entrepreneurship & SME managment At GC University it is so useful for my term paper which is based on the analysis of Ratioes of Cement Company, but it is also required the

background so i got it from here. i ve suggestion for u sir please invite all the student of Business from all of Institution of Pakistan to Upload their term working and rsearch to share their brother for the best Human Capital Generation and Entrepreneurs Thanks Regards, M. Azam Ali

6.

Usman 7 July, 2009 at 10:35 am These types of articles are indeed very helpful for the students. I am a business graduate and i needed some data related to statistics of Pakistani economy. i could not find that on the website of pakistans statistical buareau but i found here. so, i appreciate your efffort and pray to GOD that may all the people involved in this process live a healthy, peaceful pleasant and calm life.

7.

Shahzad Anwar 2 December, 2009 at 8:22 am I need local consumption and exports detail and pie charts. Shahzad Anwar

8.

Junaid Khan 22 December, 2009 at 10:29 am Great report!!! can you guide me to a link or report (preferably free) where i can get historical cement prices in middle east

9.

m younas 25 December, 2009 at 1:03 pm good & excellent performance

10.

Muhammad Mansoor Ali 19 May, 2010 at 7:58 am I am intrested in having emperical evidenece about the energy crisis impact on the cement indutries output. I,ll be much indebted for this benign action. Malik Saqib 0346-5352305

11.

Daniel 20 January, 2011 at 6:46 pm Admin! Sir, I would like to do a critical analysis on one of the cement industries of Pakistan comparing it with Average ratios of Industry. Can you help me find out my average ratios of Cement industry of Pakistan. Looking forward.

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