ARTICLE (March 05 2009): Currently, cement is a 2.50 billion tons global business, and its consumption is expected to increase to 3.13 billion tons by 2015. Many countries are therefore engaged in expanding their respective cement producing capacity in a big way. For the reason of optimising economies of scale, large-size Greenfield cement plants are being installed.
World's largest cement plant located in Missouri, USA, with a capacity of producing 12,000 tons of clinker per day, or 4 million tons of cement annually, is scheduled to be commissioned in the third quarter of 2009. Following the international trend, the Pakistan Board of Investment (BOI) is promoting investments in setting up large-size cement plants, of the capacity of 10,000 ton per day capacity, a Greenfield project costing around $234 million.
Whether or not it is economically viable under local conditions the policy is being implemented by major cement producers in Pakistan, without proactive planning. The large-scale capacity expansion is being undertaken by many cement companies to capitalise on projections of high cement demand, particularly in export markets. Fauji Cement Co Ltd has recently announced construction of a new plant of 7,200 tons of clinker per day, in parallel with the existing production line.
The plant, for which state-of-the-art plant machinery is being supplied by Polysius of Germany, is scheduled to go on stream by early 2010. This will increase Fauji Cement's annual installed capacity by about three times - from existing 1.165 million tons to 3.27 million tons of cement. Lucky Cement has recently emerged as the largest cement producer in the country, with an installed capacity of 6.55 million tons of cement per annum, having recently added two cement plants of 8,400 ton per day capacity each.
DG Khan Cement, now ranked second largest, has 4.21 million tons annual capacity. The company, which operates a 10,000 ton per day cement plant, is currently implementing another capacity expansion plan, which will further enhance total installed capacity in the range of 6.32 to 7.99 million tons of cement annually by the year 2010. The third largest producer Maple Leaf Cement has an installed capacity of 3.69 million tons of cement annually.
During the last four years cement industry has witnessed remarkable increase in installed capacity-from 16.93 million tons per annum in 2003-04 to 37.16 million tons in 2007-08. Additional capacity to the level of 6% was created in 2004-05, followed by 17% in 2005-06, another 44% in 2006-07 and 23% in 2007-08. By the year 2010 total annual cement capacity is planned to be around 51 million tons.
Per capita annual consumption of cement in Pakistan is 131 kg, in comparison to world average of 273 kg. Thus, there appears to be promising potential for increased cement consumption in future, justifying the planned large capacity expansion. But the ground realities are different. Domestic cement demand remained erratic in the last five years and registered a maximum growth of 24% in 2006-07, total dispatches being 21.05 million tons.
The annual projected growth was therefore taken by the industry as 20%-30% annually. However, during the year 2007-08 there has been nominal growth of 6.47% in domestic demand, which is projected to decline further in 2008-09. The major driver for cement consumption is infrastructure and real estate development. The situation is not optimistic due to economic slowdown, drastic cut in the Public Sector Development Program (PSDP) and recession in construction activities.
Thus even the 2007-08 target, of dispatching 31.2 million tons cement, could not be met, though highest ever export of cement was made during the period. This is also reflected in the fact that overall capacity utilisation was around 81% during the last three years, compared to 91% achieved in 2004-05.
Again, demand during 2008-09 is projected to be 40.6 million tons that may not be possible to achieve. During the first five months of the current fiscal year (July-November 2008) there has been a nominal growth of 3%. Total dispatches during the period were 12.40 million tons, including 7.94 million tons local dispatches registering a negative growth of 16%. Thus, capacity utilisation of industry during the period further reduced to 77%.
Likewise, future demand projections of 52.7, 60.5 and 71.1 million tons during financial years 2010, 2011 and 2012, respectively, may not prove to be realistic. Basically, these ambitious demand projections, and resultantly large capacity expansion programs, are designed to meet increasing export deficit in the region. Exports jumped from 1.51 million tons in 2005-06 to 3.19 million tons in 2006-07 and record 7.72 million tons in 2007-08.
But the surge in export market may be short-lived for Pakistani cement. Achieving export target of 10 million tons in 2008-09 does not seem to be realistic. Pakistan could export 4.733 million tons cement during the first six months of current fiscal year (July-December 2008). India has recently cancelled import orders for 25,000 tons of Pakistani cement. Indeed the demand in the region will be very strong in the wake of planned massive-scale construction.
The UAE, for example, will require around 26.2 million tons by 2011. But, at present there is slump in construction industry and real estate business in the UAE due to global recession. Will Pakistan continue to enjoy increasing market share in the UAE? Most likely, it will not be in such a momentum, as the global competitive dynamics present the scenario.
Now India, the second largest cement producer in the world, will not only meet its domestic demand fully, but regain its dominating role in regional markets too. Recently, the Indian government has imposed 12% duties on import of cement to support its indigenous industry.
India has added 30 million tons of capacity during 2007-08, at present having total annual installed capacity of 200 million tons. As the cement industry in Pakistan faces constraints of high fuel and financial costs, its product may not remain competitive in neighbouring countries, such as Afghanistan, Sri Lanka and Nepal, and African countries.
During the last two years Iran and Saudi Arabia have implemented cement capacity expansion projects and are reckoned as main source of cement supply to the Middle East in future. The local cement industry therefore needs to take corrective measures for its sustainable development, on an emergency basis, focusing on domestic market. (The writer is former Chairman of the State Engineering Corporation and member on the Board of Directors of the State Cement Corporation of Pakistan)