Analysis Of Cement Industry Of PakistanAPI Report

Historical Profile of Cement Industry

The cement industry in Pakistan has grown gradually with the passage of time. At
the time of independence there were only four units with total production capacity
of nearly half a million tons per annum. By 1972 the number of cement plants
increased to 14 and the production capacity also increased to 2.5 million tons. Both
public and private sectors took initiative to establish new plants. As was the case for
other industries, the cement industry was also nationalized in 1972 and the State
Cement Corporation of Pakistan (SCCP) was established and given the responsibility
to manage the production of cement in the country. Considering the higher cement
demand as compared to supply, cement import was also allowed in FY 76-77 that
continued until FY 94-95. With a change in policy of state control over industrial
units, the state owned cement plants were also put-up for privatization along with
other industries. The private sector was allowed to invest in the cement
manufacturing. Consequently, the role of SCCP as market leader vanished gradually
and currently it owns only four plants, of which two have been closed down on
efficiency and profitability grounds. In view of the higher demand during the period
of de-regulation and liberalization, a number of new units were set up and many
others invested heavily to increase their existing production capacity. As a result,
the production capacity has reached 17.7 million tons per annum during 2003.

Sector overview
There are 29 cement production units in the country. Up to May 2007, the total
installed cement production capacity is 36.841 million tones. By the end of June
2011, the installed cement production capacity will touch to the level of 49.579
million tones. Due to political instability and lack of allocation of funds for public
sector development program, cement industry of Pakistan was in the recession
phase had registered an average growth rate of 2.96% for the period from 1990 to
2002. For the period from 2003 to 2007 cement industry of Pakistan had registered
an average growth rate of 20%. The boost in cement sector is because of the
rising construction activity in the country, reconstruction activity in Afghanistan and
increasing development expenditure by the government.

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Install Capacity
40

35
30

25

20
Capacity
15

10

0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

There are four foreign companies, three armed forces companies and 16 private companies listed
in the stock exchanges. The industry is divided into two broad regions, the northern region and
the southern region. The northern region has over 87 percent share in total cement dispatches
while the units based in the southern region contributes 13 percent to the annual cement sales.

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

(Jul-Mar)
No. Of 22 22 23 24 26 29
operational
units
Install 15.72 16.32 16.93 17.90 24.30 36.841
Capacity
(million tons)
Domestic 9.83 10.98 12.54 14.78 16.85 16.98
Consumption
(million tons)
Export 0.107 0.43 1.118 1.565 1.505 2.13
(million tons)
Capacity 62.5 67.2 74.0 82.5 84 76.38
Utilization
%

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Number of Units (Grey Cement)

North Zone 19
South Zone 10
Total 29

Numberof Units
20
18
16
14
12
10
8
6
4
2
0
North Zone South Zone

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Contribution to National Economy

By

Cement Sector

Direct and Indirect Taxes Rs. 23.50 Billion

Value of Fixed Assets Deployed Rs. 85.21 Billion

Loans from Financial Institutions Rs. 79.53 Billion

Shareholders Equity Rs. 80.00 Billion

Employment (Direct & Indirect) 150,000 (Approx.)

Source: All Pakistan Cement Manufacturing Association of Pakistan (APCMA)

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TYPES OF CEMENT PRODUCED IN Pakistan

1 Ordinary Portland Cement (OPC)
2 Sulphate Resisting Cement (SRC)
3 Blast Furnace Slag Cement (BFSC)
4 White Cement

PRODUCTION PROCESS

1 Dry Process (In Pakistan most of the industry employs dry process)
2 Semi-wet Process
3 Wet Process
RAW MATERIAL

Main constituents of cement include:

1 Lime
2 Alumina
3 Iron
4 Laterite

These constituents are obtained from following raw materials:

1 Lime stone
2 Clay

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3 Overburden
4 Shale
5 Gypsum
6 Iron ore
7 Bauxite
8 Slag / Fire Clay

Cement manufacturing consists of following four processing steps:

1 Crushing of Raw Material
2 Grinding of Raw Material
3 Pre-calcining / Pyroprocessing
4 Grinding of Clinker and Packing

MAIN UTILITIES USED FOR CEMENT PRODUCTION

1 Fuel Oil , Natural Gas and Coal
2 Electricity
3 Water

ANNU AL CAP ACIT Y, NO OF LINE S, YEAR OF COM MIS SION & PR OCE SS
2005 2011
Name of Annual BMR/N UpgradedNo. Proce Provi
Sr. Unit Capacities ew Capacityof %
Year of Year of ss nce
Line Commiss upgrada
No. Clinker Cement Clinker Clinker Cement Age s ion tion

Askari 1,050,00 1,102,50 2.22

1 (Wah) 900,000 945,000 150,000 0 0 % 1 1994 Jan-06 Dry Punjab

Askari 1,200,00 1,260,00 1,500,00 1,575,00 3.18 N.W.F.

2 (Nzp) 0 0 300,000 0 0 % 1 1995 Aug-06 Dry P

Bestway 990,00 1,039,50 1,170,00 1,228,50 2.48 N.W.F.

3 (Hat) 0 0 180,000 0 0 % 1 July, 1998 Jul-05 Dry P

Bestway 1,725,0 1,725,00 1,811,25

4 (K.K) - - 00 0 0 1 July, 2006 Dry Punjab

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New 1,725,0 1,725,00 1,811,25

(K.K) - - 00 0 0 1 July, 2008 Dry Punjab

3,450,0 3,450,00 3,622,50 7.31

- - 00 0 0 %

1,039,50 2.10 N.W.F.

5 Cherat 750,000 787,500 240,000 990,000 0 % 1 July, 1985 Aug-06 Dry P

6 D.G.Khan
April,
Old Line 660,000 693,000 150,000 810,000 850,500 1 1986 Jul-05 Dry Punjab

New 1,039,50 1,200,00 1,260,00 June,

Line 990,000 0 210,000 0 0 1 1998 Oct-05 Dry Punjab

1,650,00 1,732,50 2,010,00 2,110,50 4.26

0 0 360,000 0 0 %

D.G.Khan 2,010,0 2,010,00 2,110,50 4.26

7 (k.K) - - 00 0 0 % 1 14-May-07 Dry Punjab

1.02
8 Dandot 480,000 504,000 - 480,000 504,000 % 1 April,1986 Dry Punjab

1,110,00 1,165,5
9 Fauji 900,000 945,000 210,000 0 00 1 Nov, 1997 Aug-05 Dry Punjab

2,010,0 2,010,00 2,110,50

New Line - - 00 0 0 1 1-Aug-10 Dry Punjab

2,220,0 3,120,00 3,276,00 6.61

900,000 945,000 00 0 0 %

1.65
10 Fecto 600,000 630,000 180,000 780,000 819,000 % 1 Dec, 1988 May-06 Dry Punjab

11 GharibWal 180,000 189,000 - 180,000 189,000 1 Sep, 1964 Wet Punjab

180,000 189,000 - 180,000 189,000 1 Sep, 1964 Wet Punjab

180,000 189,000 - 180,000 189,000 1 Sep, 1964 Wet Punjab

2,010,0 2,010,00 2,110,50

New Line - - 00 0 0 1 Jan-08 Dry Punjab

2,010,0 2,550,00 2,677,50 5.40

540,000 567,000 00 0 0 %

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April, N.W.F.
12 Kohat 540,000 567,000 - 540,000 567,000 1 1983 Dry P

2,010,0 2,010,00 2,110,50 N.W.F.

New Line - - 00 0 0 1 Jul-07 Dry P

2,010,0 2,550,00 2,677,50 5.40

540,000 567,000 00 0 0 %

June, N.W.F.
13 Lucky 628,571 660,000 91,429 720,000 756,000 1 1996 Jul-05 Dry P
June, N.W.F.
628,571 660,000 91,429 720,000 756,000 1 1996 Jul-05 Dry P

1,142,8 1,142,85 1,200,00 N.W.F.

New Line I - - 57 7 0 1 Sep-05 Dry P

1,142,8 1,142,85 1,200,00 N.W.F.

New Line II - - 57 7 0 1 Sep-06 Dry P

1,257,14 1,320,00 2,468,5 3,725,71 3,912,00 7.89

3 0 71 4 0 %

14 Maple Leaf

Old Line 120,000 126,000 - 120,000 126,000 1 1956 Wet Punjab

" 171,000 179,550 - - - 0 1960 Wet Punjab

March,198
" 180,000 189,000 - 180,000 189,000 1 8 Wet Punjab

1,039,50 1,200,00 1,260,00 April,

New Line 990,000 0 210,000 0 0 1 1998 Aug-06 Dry Punjab

2,010,0 2,010,00 2,110,50

New Line - - 00 0 0 1 Jun-07 Dry Punjab

1,461,00 1,534,05 2,220,0 3,510,00 3,685,50 7.43

0 0 00 0 0 %

Mustehku N.W.F.
15 m - - 165,000 165,000 173,250 1 1965 Wet P
N.W.F.
- - 165,000 165,000 173,250 1 1965 Wet P
N.W.F.
- - 300,000 300,000 315,000 1 1981 Dry P
1.33
- - 630,000 630,000 661,500 %

October,1
16 Pioneer 600,000 630,000 105,000 705,000 740,250 1 994 Jul-05 Dry Punjab
New Line 1 May, 2006 Dry Punjab
- - 1,228,5 1,228,57 1,290,00

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71 1 0

1,333,5 1,933,57 2,030,25 4.10

600,000 630,000 71 1 0 %

2,010,0 2,010,00 2,110,50

17 Pakistan - - 00 0 0 1 July, 2006 Dry Punjab

2,010,0 2,010,00 2,110,50

New Line - - 00 0 0 1 July, 2010 Dry Punjab

4,020,0 4,020,00 4,221,00 8.51

- - 00 0 0 %

Dewan N.W.F.
18 Hattar 540,000 567,000 - 540,000 567,000 1 Feb-02 Dry P
N.W.F.
- - 540,000 540,000 567,000 1 Jul-05 Dry P

1,080,00 1,134,00 2.29

540,000 567,000 540,000 0 0 %

19 Flying 600,000 630,000 - 600,000 630,000 1 Jan-05 Dry Punjab

- - 600,000 600,000 630,000 1 Nov-06 Dry Punjab

1,200,00 1,260,00 2.54

600,000 630,000 600,000 0 0 %

13,008, 13,658,5 24,922, 37,759,2 39,647,2 79.97

19 SUB TOTAL 143 50 142 86 50 % 38

SOUTH ZONE
Name of Annual Upgrated No. Proce
Sr. Unit Capacities BMR capacity % of Year of Year of ss Province
Clinker Cemen Clinker Clinke Cemen Age L Commis upgradt
No. t r t ine sion ion

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20 A.C.Rohri 50,000 52,500 - 50,000 52,500 1 1938 Wet Sind

180,000 189,000 - 180,000 189,000 1 1972 Wet Sind

230,000 241,500 - 230,000 241,500 0.49%

21 Attock. 720,000 756,000 - 720,000 756,000 1 1988 Dry Baluchistan

1,039,5
New Line - - 990,000 990,000 00 1 Jun-06 Dry Baluchistan

1,710,0 1,795,5
720,000 756,000 990,000 00 00 3.62%

Dadabho
22 y 504,762 530,000 - 504,762 530,000 1.07% 1 1985 Dry Sind

Al-Abbas
23 150,000 157,500 450,000 600,000 630,000 1 1989 Dry Sind

300,000 315,000 300,000 600,000 630,000 1 Aug-98 2006 Dry Sind

1,200,0 1,260,0
450,000 472,500 750,000 00 00 2.54%

24 Javedan 150,000 157,500 - 150,000 157,500 1 1964 Wet Sind

150,000 157,500 - 150,000 157,500 1 1965 Wet Sind

300,000 315,000 - 300,000 315,000 1 1980 Dry Sind

600,000 630,000 - 600,000 630,000 1.27%

1,142,85 1,142,8 1,200,0 May,

25 Lucky - - 7 57 00 1 2006 Dry Sindh

1,142,85 1,142,8 1,200,0

- - 7 57 00 1 Nov-06 Dry Sindh

2,285,71 2,285,7 2,400,0

- - 4 14 00 4.84%

26 Pakland 750,000 787,500 - 750,000 787,500 1 1985 Dry Sind

New Line - - 720,000 720,000 756,000 1 Oct-08 Dry Sind

3.11%

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1,470,0 1,543,5
750,000 787,500 720,000 00 00

Pakistan
27 Slag - 157,500 - - 157,500 0.32% 1 1994 Dry Sind

28 Thatta 300,000 315,000 - 300,000 315,000 0.64% 1 1982 Dry Sind

29 Zeal Pak 102,000 107,100 - 102,000 107,100 1 1956 Wet Sind

102,000 107,100 - 102,000 107,100 1 1956 Wet Sind

102,000 107,100 - 102,000 107,100 1 1960 Wet Sind

102,000 107,100 - 102,000 107,100 1 1963 Wet Sind

300,000 315,000 - 300,000 315,000 1 1969 Wet Sind

300,000 315,000 - 300,000 315,000 1 1969 Wet Sind

1,008,0 1,058,4 1,008,0 1,058,4

00 00 - 00 00 2.13%

SUB 4,562,7 4,948,4 4,745,71 9,308,4 9,931,4 20.03

10 TOTAL 62 00 4 76 00 % 22

GRAND 17,570, 18,606, 29,667, 47,067, 49,578, 100.0

29 TOTAL 905 950 856 762 650 0% 60

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Growth in cement sector

The cement industry of Pakistan entered the export markets a few years back, and has established
its reputation as a good quality product. The latest information is that India will import more
cement from Pakistan. So far 130,000 tones cement has been exported to the neighboring
country. During the financial year-07, cement sales registered a growth of 31 percent to 17.53
million tones as against 13.5 million tones sold last year. The cement sales during July-February-
08 showed an increase, both in domestic and regional markets to 18.17 million tones. The
domestic sales registered an increase of 7.2 percent to 14.4 million tones in the current period as
compared to 13.5 million tones last year whereas exports stood at 3.7 million tones as against 1.8
million tones in the corresponding period last year, showing an increase of 110 percent. The
government is considering allowing further concessions and additional
incentives for cement
export, with a view to increase overall export volume. These measures will
immensely help in
promoting and protecting high investments made in cement sector in recent
years. In the wake of its
huge surplus production as a result of massive capacity expansion
undertaken it rather seems. imperative for Pakistani cement industry, on one
hand, to sustain existing export markets and, on
the other, explore new markets.

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Demand Growth:
The cement demand grew 19 percent and 13 percent during FY05 and FY06 respectively. During
the first nine months of FY07-08, production increased by 30 percent as compared to last year.
The demand for cement was grown by 26 percent during FY07 and 17 percent in FY08. The per
capita consumption of cement has risen from 117 kg in FY06 to 131 kg in FY07. The main
factors behind increase in demand of cement were: 60 percent higher Public Sector Development
Projects (PSDP) allocation, seven percent GDP growth, increasing number of real estate
development projects for commercial and residential use, developing export market and expected
construction of mega dams. The operating capacity of cement in FY05 and FY06 was 18 million
and 21million tonnes, which rose to 37 million tonnes by the end of FY07. Local demand of
cement is rising not because of higher local utilisation but due to high exports, and hence less
availability of cement is pushing local demand and prices up. Construction of four large dams
will generate demand of 3.7mn tons as construction activities start. Our estimate does not include
demand generation from Skardu-Katzarah dam as its feasibility study in not yet completed.
Extent of demand generation will depend on size of dam, type of dam, and extent of
relocation/resettlement activities required.Bhasha dam will generate maximum demand as it is

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RCC concrete dam whereas other dams being Earthfill/Rockfill dams will require less cement for
their construction. Resettlement activities for Kalabagh dam will generate maximum demand as
it is located in a highly populated area.

Up coming cement projects

In FY08 to-date, Pakistan cement industry brought in 5.84 million tons of new capacity of
cement production taking the total cement capacity to 36.1 million tons. This includes DG
Khan’s new Khairpur plant & Maple Leaf’s new production line of 2.1 million tons each and
some other additions of 1.8 million tons. Going forward, Lucky Cement with its 2 new lines of
1.26 million tons capacity each and Fauji Cement with its 2.1 million tons new line are expected
to come online. With these additions and other expansions, the total industry installed capacity is
expected to reach 49.1 million tons per annum by FY10.

Improved access to regional market

Afghanistan is Pakistan’s largest cement export market. The prospects for cement exports seem
bright in the medium term due to rising domestic as well as regional cement demand. Pakistan
also achieved improved access to India after the complete removal of the 12.5 percent custom
duty on Portland cement imports in this country from January 2007, showing improved export
opportunities for Pakistan. India is planning to import more cement from Pakistan to stabilise
prices in the market and the government wants a balance in demand and supply of cement in the
current fiscal year.

The import of cement from Pakistan has increased manifold during last four months. India has
registered a number of Pakistani cement manufacturers, a requirement to facilitate import of
cement. Pakistan has already increased the frequency of trains from one to three in a week to
carry cement from Pakistan to Wagah border. Due to boom in the construction industry, India
needs cement in bulk to meet its growing needs.

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Where Pakistani cement companies have excess cement production facilities, India is facing
shortage in cement. This has become a boon for Pakistan. Currently, Pakistani cement is exported
to Middle East, Africa, Afghanistan and India. The exports for FY08 have already surpassed the
last whole year’s export of 3.19 million tones and are likely to reach to 6.67 million tones in
2008.

Sources of coal to Pakistan cement industry

According to estimates prepared by the Geological Survey of Pakistan (GSP),
Pakistan has total coal reserves of
185 billion tons, out of which 184 Province Resources Million Tons
Billion tons are in Sindh – one of Balochistan 217
the biggest good quality lignite Punjab 235
deposit in the World. Sindh 184,623
NWFP 90
Azad Kashmir 9
Total 185,173

Province Ressources Million Tons Status

Balochistan :
Hamai 76 Dev
Sor Range- 50 Dev
Degari
Duki 50 Dev
Mach-Abegum 23 Dev
Pir Ismail Ziarat 12 Dev
Bar khan – 6 Dev
Chamalang
Sub-Total 217
PUNJAB:

Salt Range 213 Dev

Markawal 22 Dev
Sub-Total 235
SINDH:

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Thar Coal 175,506 Non Dev

Sonda-Thatta 3,700 Non Dev
Indus East 1,777 Non Dev
Jherruck 1,823 Non Dev
Lakhra 1,328 Dev
Ongar 312 Non Dev
Meting – Jhimpir 161 Dev
Badin 16 Non Dev
Sub Total 184,623
NWFP:
Hangu / Orakzai 82
Cherat / Gulla 9 Dev
Khel
Sub Total: 90 Dev
Azad Kashmir:
Kotli 9
Sub Total: 9 Dev
Total 185,173
Energy year Book, 2003-04

Coal is found in all the four provinces of Pakistan. The country has huge coal resources, about
185 billion tonnes, out of which 3.3 billion tonnes are in proven/measured category and about 11
billions are indicated reserves, the bulk of it is found in Sindh. At present most of the cement
companies have switch to coal or gas as their basic fuel; the process has been completed in the
last 6 to 7 years. According to the data of the All Pakistan Cement Manufacturing Association of
mid-2007, the cost of cement production per tonne by furnace oil was around Rs2,083 whereas
the cost of production per tonne by coal was Rs8,68, saving Rs1,215 per tonne. Similarly, the
saving per bag was Rs60.75, which is a huge difference.

CEMENT PROCESS
• Cement acts as a binding agent, holding particles of aggregate together to form
concrete.
• Cement production is highly energy-intensive process and involves the chemical
combination of calcium carbonate (limestone), silica, alumina and small
amounts of other materials.
• Burning limestone to make clinker produces cement, and the clinker is blended
with additives and then finely ground to produce different cement types. Desired
physical and chemical properties of cement can be obtained by changing the

percentages of the basic chemical components (CaO, Al2O3, MgO, SO3, etc)

Cement production involves the following stages:

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Using the any of the following process produces cement

- Wet Process
- Semi-dry Process
- Dry process
• In the Wet Process, raw material is fed into kiln in slurry form thus energy
consumption is high. In the dry process, the ground raw materials are fed into
kiln in powder form and energy consumption is comparatively lower to raise the
temperature to the required level.
• Cement plants established in 60s and 70s were based on wet process, whereas
the plants established in 80s/90s are based on dry process.

Rank of Pakistan in Cement Export:

Pakistan has already joined the world club of cement exporters, with 48th ranking among a total
of 116 exporting countries, having attained recently an export figure of USD 33.24 million.
Some of the big players from Pakistan who can possibly play a major role in the export of
cement to India are Lucky Cement, the largest cement producer in the country, DG Khan Cement
Co, Bestway Cement, Maple Leaf Cement, Attock Cement, among others.

Cement Consumption in Pakistan:

The resumption of countrywide construction activities after the winter spell has skyrocketed the
local consumption of cement to 63 percent higher than last January.

The construction activity has shot up both in public and private sectors besides the Northern
Areas, and the cement demand has received a sudden jump.

The industry sources are expecting further rise in consumption in the days to come while
disagreeing with the impression that the cement prices would touch again the highest-ever figure
of Rs 400 per 50 kg bag.

However, some circles are also carrying an impression that the cement manufacturers and the
cement dealers have formed a cartel to create an artificial shortage of cement in the market with
the rise in demand.

But according to the All Pakistan Cement Manufacturers Association (APCMA), local dispatches

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during January 2007 rose to 1,853,487 metric tonnes against 1,141,443 of January 06, registering
a phenomenal growth of 63 percent.

Similarly, the cement exports during January 07 have risen to 244,886 metric tonnes against
47,282 metric tonnes during January 06. Resultantly, the total dispatches have reached to
2,098,373 metric tonnes in January 07 against 1,188,725 metric tonnes in January 06, registering
a growth of 76.52 percent.

As far as July 06-Jan 07 figures are concerned, the local dispatches are recorded at 11,829,260
metric tonnes against 9,122,447 metric tonnes in the corresponding period, showing an increase
of 30 percent. On the exports front, the total dispatches during July 06-Jan 07 have reached to
1,447,580 metric tonnes against 822,730 metric tonnes in the corresponding period. The total
dispatches during July 06-Jan 07 have recorded a phenomenal growth of 33.50 percent, as it
remained 13,276,840 metric tonnes in July 06-Jan 07 against 9,945,177 in July 05-Jan 06. Per
capita cement consumption in Pakistan had increased from 75 to 120kg, but it was still far below
the 1,780kg per capita consumption countries like Korea.

The industry sources believe that the opening up of roads to the Northern Areas has given a boost
to the construction activities there. Similarly, they added, the public sector construction work has
also registered a phenomenal growth with the end of the half fiscal and the upcoming general
elections. According to them, the demand from the government contractors is rising with every
passing day.
An increase in local demand can be assessed with the simple fact that dispatches from the cement
factories were recorded at 84,000 metric tonnes on Feb, followed by 55,000 tonnes on Feb 4 and
60,000 metric tonnes on Feb 5.

“This year again could be critical for the industry like the previous one,” said one cement
manufacturer. However, a few others believe otherwise. According to them, the production
capacity of the sector has risen to 15 million tonnes per annum, from 18 million tonnes per
annum in July 2005 to 33 million tonnes in Jan 2007, therefore no big gap in supply and demand
is expected. The prices would therefore be within the reach of the common man, they added.

These circles have also expressed the view that the recent increase in price (which reached at Rs
250 per 50 kg bag within a few days) would be cooled down soon. However, they have disagreed
with the impression that the manufacturers of the dealers have formed any cartel, as they said,
the cement manufacturers are lacking the harmony in their approach like the year earlier.

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SWOT ANALYSIS:
Strength
Cement export to India through railway

Most of the cement export to India is through railway. In order to facilitate cement export to
India, the railways has doubled its cement capacity and increase its frequency of trains to India
from Pakistan. This step has been taken by Pakistan Railways in order to increase cement export
to India. Which is regarded as a highly profitable market.

Use of Coal:
Coal is found in all the four provinces of Pakistan. The country has huge coal resources, about
185 billion tonnes, out of which 3.3 billion tonnes are in proven/measured category and about 11
billions are indicated reserves, the bulk of it is found in Sindh.

At present most of the cement companies have switch to coal or gas as their basic fuel; the

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process has been completed in the last 6 to 7 years. According to the data of the All Pakistan
Cement Manufacturing Association of mid-2007, the cost of cement production per tonne by
furnace oil was around Rs2,083 whereas the cost of production per tonne by coal was
Rs8,68,saving Rs1,215 per tonne. Similarly, the saving per bag was Rs60.75, which is a huge
difference. Reserves of coal can become a strength for Pakistani cement industry if Pakistan
import sulphur washing plant from European country than Pakistan cement industry is able to
utilize local coal to meet its energy requirement

Cheaper labor:

The labor of Pakistan is very cheap. This is the important strength of the cement industry as the
cement companies of Pakistan has to pay less to there labor which result in saving of there
income which later on can be utilized in the expansion of cement plant. Which will increase the
cement production

Good Domestic and Forgien Market :

The export may reach to $ 500 million increase during 2008. Data for the first quarter of FY08
shows that Afghanistan is Pakistan’s largest cement export market. The prospects for cement
exports seem bright in the medium term due to rising domestic as well as regional cement
demand.

Good Government Policies:

Government policies are in the favour of cement sector. Due to the government favourable
policies the cement sector gets the highest growth rate of 21.11% among all the industries of
pakistan in year 2006-07. The total industry installed capacity is expected to reach 49.1 million
tons per annum by FY10

High Quality of Cement:

Pakistan produces good quality of cement. This is the main reason due to which recently Russia
is offering high price for Pakistani cement. Globally Pakistan is recognized for producing good
quality of cement due to which countries like Afghanistan, India, Middle east and some African
countries prefer to import cement from Pakistan.

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Weakness:
Increase freight charges:

Exporters of the cement often complain that railways freight charges for carrying cement from
Lahore city to the border of India are Rs500 per ton ($8 per ton) while it covers only 35 km.
Against this, they say on the Indian side, the freight is only $3 per ton for bringing goods from
Chundrigar to the border area.

Cement exports have been badly hit by high fee that is being charged by trucks and also by
foreign shipping companies for the haulage of cement from Pakistan to India. This increase in
freight charges effect our exports due to which our exports is declining

Logistic Problem

Some of the cement companies of Pakistan have received orders from Russia with a price tag of
Rs 860 per bag. But our logistics is the biggest hurdle in the way as our transportation system is

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not good enough to transport cement to Russia due to which our cement companies might lose
the chance to capture the Russian market which is a highly profitable market.

Usage of Paper bag:

Pakistani cement companies export there cement in paper bags because paper bags are cheap as
compared to plastic bags. But the Cement exported in paper bags is against the International
standards and companies have to pack the cement in plastic bag. The cement export to India
could be affected by the shortage of plastic bags used for transporting the commodity. Although
there are two companies that are manufacturing plastic bags for cement but they are not able
meet the demand. So that’s why Pakistan cement companies export cement in paper bags.

Idle capacity of various players:

The biggest problem of cement industry is the idle capacity of various players. As many cement
players are not operating at there full capacity.

2006 2007 2008

D G Khan 10% 39% 39%
Fauji 12% 27% 30%
Lucky 12% 39% 43%
Maple Leaf 10% 37% 42%
Pioneer 10% 38% 40%
Attock 06% 37% 42%
Industry Average 17% 41% 45%

Opportunities
Government Development Expenditure

Government development expenditures count for one third of total cement consumption. Increase
in development expenditures has helped cement demand to grow at very high rates. Increase in
PSDP- as announced in Medium Term Development Framework 2005-10 – made the cement
demand to grow in the country. Infrastructure development in a region triggers private
development projects having even positive impact on cement demand.

Construction of large dams

Construction of four large dams will generate demand of 3.7mn tons as construction
activities start. Our estimate does not include demand generation from Skardu-
Katzarah dam as its feasibility study in not yet completed. Extent of demand
generation will depend on size of dam, type of dam, and extent of
relocation/resettlement activities required.Bhasha dam will generate maximum
demand as it is RCC concrete dam whereas other dams being Earthfill/Rockfill dams
will require less cement for their construction.

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Resettlement activities for Kalabagh dam will generate maximum demand as it is

located in a highly populated area.

Improved access to regional market

Afghanistan is Pakistan’s largest cement export market. The prospects for cement exports seem
bright in the medium term due to rising domestic as well as regional cement demand. Pakistan
also achieved improved access to India after the complete removal of the 12.5 percent custom
duty on Portland cement imports in this country from January 2007, showing improved export
opportunities for Pakistan. India is planning to import more cement from Pakistan to stabilise
prices in the market and the government wants a balance in demand and supply of cement in the
current fiscal year.
The import of cement from Pakistan has increased manifold during last four months. India has
registered a number of Pakistani cement manufacturers, a requirement to facilitate import of
cement. Pakistan has already increased the frequency of trains from one to three in a week to
carry cement from Pakistan to Wagah border. Due to boom in the construction industry, India
needs cement in bulk to meet its growing needs.

Demand of Pakistani cement by Russia

Fresh enquiries have been received from Russia and buyers are quoting very attractive prices as
Pakistani cement quality is of very high standard and holds good strength.

Earthquake in China
In the month of May china is hit by severe earthquake having the magnitude of 7.8 this
earthquake has cause the serious destruction in china. This disaster is also an opportunity
for Pakistan cement industry to export cement to china.

High prices of cement in the international market

Cement exports are expected to soar by a massive 107 per cent due to the primary source of
overall cement growth in FY08, the high exports owing to the cement supply shortage in India
and Middle East which lead to rocketing cement prices in the region.

Increase in demand of cement due to the up coming sports event

South Africa is schedule to host the football world cup of 2010 due to which they need to make
the football stadiums for the World Cup and Sri Lanka are also expected to approach Pakistani
companies for cement imports because sri lanka to co-host the cricket world cup of 2011.

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Threats
Indian and Iran industry is also expanding its cement capacity

Presently, India faces an acute cement shortage in its Southern states of Tamilnado and Madras
and in north Punjab. However, reports indicated that the Indian industry is also working on a fast
track to expand their capacity in these regions to off-set the shortfall 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.

High energy prices

Recently cement industry of Pakistan is facing high energy prices due to increase in the
international prices of coal and oil. As our coal contain high percentage of sulphur. Due to which
Pakistan cement industry is not able to use local coal as a source of energy. Due to which
Pakistan cement industry has to import coal from different countries at high prices.

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High finance and depreciation cost

As Pakistan cement industry is expanding its capacity to get the proper advantage of strong
demand of cement in different countries. The total industry installed capacity is expected to reach
49.1 million tons per annum by FY10 and because of higher expansion finance and depreciation
cost is also going to rise by the FY10.

Decrease profitability due to competition in cement industry

The sharp decline in cement prices has been witnessed due to domestic competition among
producers has dampened the profitability of the industry. This increase in competition among the
players have further decreased the prices of cement in the local market. The cement
manufacturers decrease the prices of there products in order to get high market as compared to its
competitor.

High level of taxation

Presently, the cement industry of Pakistan is heavily burdened due to levy of Federal Excise
Duty @ Rs. 750 per ton and General Sales Tax @ 15% on duty paid value. In addition to Federal
Excise Duty and General Sales Tax, cement industry is also paying the provincial levies (Royalty
and Excise Duty) on acquiring of raw material for production of cement i.e. lime stone and shall
clay.

Per ton cost impact of these taxes in four provinces of Pakistan is as follows:

Punjab NWFP Sindh Baluchistan

Lime Stone 24 21 17 65
Shall/Clay 3 4 3 11
A comparison of taxation and retail prices with other regional countries revealed that taxation in
Pakistan is highest while cement retail prices are lowest.

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