Actual cement production during July 2004-March 2005 was 10.726 million tons, registering a growth of 15% over the previous year. Sales during the whole fiscal year 2004-05 were 16.353 million tons, reflecting an increase of 18%. Besides meeting the current domestic demand the industry is also exporting Portland cement to Afghanistan and the Gulf region.
Total exports during the year 2004-05 were recorded to the tune of 1.565 million tons. The industry has achieved above 90% overall capacity utilisation during the year, though a few units even operated at cent per cent of their installed capacity. The cement industry has earned Rs 3.2 billion profits after tax during July-December 2004.
Cement industry is among the most advanced industries in Pakistan and has integrated production facilities based on locally available raw materials. It has done continuous technological up-gradation, having acquired modern dry process technology.
It has installed latest equipment for dust collection and is relatively environmental-friendly. It has recently converted furnace-oil firing to coal firing system, resulting in substantially reduced production cost.
A few cement plants have also installed co-generation power plants. The industry is de-controlled from price and distribution, and now also enjoys reduced central excise duty and export incentives.
There has been no new taxes made applicable to the industry in the 2005-06 budget. It is one of the priority industries for investment in Pakistan. Cement/sugar sub-sector, mostly cement, attracted inflow of foreign direct investment of US $4.7 million during July 2004-April 2005.
Capacity and capability exists domestically for undertaking design, engineering, manufacturing and installation of complete cement plants up to a capacity of 5,500 ton per day.
The national engineering industry has references of setting up a number of complete cement plants and also for supplying major equipment, components and spares to almost all the units in operation these days. Technical expertise developed for management, operation and maintenance for cement plants is of high standards.
The perspective: The basic raw material for cement is limestone. Pakistan has very large deposits of limestone in all the provinces and Azad Jammu & Kashmir, which is graded as of good quality. Exploitation of these reserves has caused accelerated promotion of the cement industry over the years, contributing largely towards socio-economic development, both at the regional and national levels.
The Pakistan Industrial Development Corporation had established pioneering cement plants in the fifties. That trend was pursued by the private sector entrepreneurs subsequently.
During the fiscal year 2003-04, total cement sales rose to the level of 13.63 million tons, compared to 11.40 million tons during the year 2002-03, registering a growth of about 20 percent. Cement sales in the domestic market were to the level of 12.51 million tons, which is a 14 percent increase, whereas export sales amounted to additional 1.12 million tons, a growth of 160 percent over the previous year.
Resultantly, the cement industry achieved 81% capacity utilisation during the year ending 30th June 2004, the highest ever during the last decade, whereas a few of individual cement plants even achieved 85% to 100% capacity utilisation.
Cement production until the late nineties remained almost stagnant having recorded a nominal increase of about 3% annually. Again, the sales were even less than production due to depressing demand.
To give impetus to the construction and housing industry, the government declared, in June 1999, housing as an industry extending it all fiscal incentives, special treatment and other benefits as admissible under the investment policy. It was thus in the year 2002-03 that the growth for cement reached the level of 11%. The trend of increased demands continued in the year 2003-04.
The enormous surge in demand was anticipated by the industry that doubled its installed capacity of 8.9 million tons, about six years ago, to 17.6 million tons in 2003-04. The excellent performance of the cement sector during recent years has increased capacity utilisation, and resultantly profitability.
During the period July- December 2004 the industry has earned an after-tax profit of Rs 3,200 million, registering a growth of 17%, compared to July- December 2003. Interestingly, during the fiscal year ending June 30, 2003 the industry had suffered a loss of Rs 88 million.
THE PROSPECTIVE: The Cement industry is currently implementing an ambitious plan to expand its installed production capacity by about eighty (80%) percent, with an investment of over one billion dollars, to be completed within five years. It is envisaged to increase an annual installed capacity, in phases, to reach 28.21 million tons by the year 2007-08, and eventually to 35.59 million tons. There has already been an addition of 2.39 million tons to the total installed capacity during the fiscal year 2004-05.
The need for the Pakistan cement industry to undertake major capacity expansion is justified in view of the strong market demands, both domestic and export and salutary fiscal and industrial policies of the government. Nonetheless, the world scenario presents a pessimistic picture for the future. Global cement production - and obviously the consumption - in 2004 were at the level of 2.1 billion tons, of which the share of China was almost half.
The rest of the world (excluding China that had no surplus cement) achieved a just 3.8% increase in production over the previous year. The trend for consumption in these countries rose in the past years to an average of 2.75% annually.
This translates into the apprehension that cement demand in the rest of the world was not increasing proportionate to the supply level. It is thus projected, based on current production capacity that is likely to increase to 2.5 billion tons by the year 2008, that internationally there would be some 10 million tons cement surplus in the near future.
The world cement price is very competitive, as Turkey, Japan, Thailand and India are the leading exporters of cement enjoying high volumes of production and low energy cost. In the backdrop of projected surplus cement internationally, its price will reduce drastically in the future having a negative impact on the performance the of cement industries producing low volumes like in Pakistan.
Due to various factors, locally produced cement price is not competitive. Even in the domestic market there has been sharp fluctuation in its price. Presently, the cement price is continuously increasing, in spite of a number of fiscal and financial benefits extended to the industry during recent years, including a 25% reduction in applicable central excise duty, lesser fuel cost due to coal conversion, optimal capacity utilisation and other positive factors.
In order to be competitive, the industry is required to arrest the trend of price increase, as cement production cost would as a result of the economic expansion of various existing units.
The industry should therefore review its price structure and not lose sight of fact that its survival and sustainability lies in consolidating its domestic market as the construction boom in neighbouring markets may not last long. The industry needs to have a long-term vision.
It is essentially important for it also to adopt measures to reduce its present production cost further by improving production efficiency, conserving energy and employing advanced techniques.
Material sciences are developing rapidly the world over, and advanced construction materials are being produced, in particular, for enhancing quality, strength and efficiency in concrete construction. The industry should, therefore, make investment in advanced cement technologies, over short and long term horizons, in the wake of the recent massive destruction from the earthquake.