Pakistani Cement Industry: An Analysis (Article)

Pakistani Cement Industry: An Analysis (Article)

A Story by Ibrahim Hoti
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An economic analysis of a cement industry.

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The past term saw a lot of growth for Pakistan’s cement industry, as the market saw a breakthrough year. The year saw four new cement producing companies(AttockCherat, DG Cement and Lucky Cement) announcing their intentions to increase production capacity. When these plans reach full fruition (probably in the upcoming year or so), they are predicted to effectively cause the overall production of cement to rise by 7.7 million tons, from the current 45 million tons of cement to 53 million tons of cement per annum. However, when it comes to competition in this market, the quality of much of the cement produced is the same, or similar, and thus there’s an oligopolistic market, where companies try to either keep their prices under or the same as their competitor’s prices. A major problem in the cement market is that big players like D.G. Khan Cement, Cherat Cement, and Dadabhoy Cement have too much production capacity that the total market production capacity actually doubles demand for cement in the market. In this case, the APCMA is required to get involved and keep prices in a good range.

 The competitive market for cement is split into two parts geographically; the North zone and the South zone. The North zone used to have less competition and production than the South zone, but with the D.G. Cement plant being set up in the North zone, the South Zone now has about three times less cement production than the North zone, and is now not dominant in cement production, though it nearly always has been in the past. Here are a few of the largest cement producing companies in Pakistan.

 Supplies and Demand: Over the past few years, the once common supply shortage has disappeared due to the expansion and setting up of new companies in the market. This is likely to cause serious surpluses in the market, as demand only has a growth rate of 4% in the South and 8% in the North. These days, the majority of cement demand comes from private house builders while government spending on infrastructure decreasing has meant demand for cement is expected to stay low.Meanwhile, private house building demand for cement is also growing at a slower rate now, due to inflation in certain markets and a lack of consumer faith in the market for real estate. As well as this, the cement industry has been especially hard hit due to the fact that demand for cement also dipped a lot more since the start of the growth in capacity of cement companies. This means that those companies couldn’t properly predict such a low demand for cement and thus the supply surplus of cement will be even higher than before, with the extra recent dip. 

Risk Factors: The cement industry in Pakistan is sensitive to many risk factors. One of these factors is the technological changes in the field, as a  small technological change can cause an entire plant to become obsolete if they can’t completely change their machines because they can’t afford it all the time with limited capital inflows. Changes in energy prices can also have a very harmful effect on energy because 40-45% of the total cost of production is on fuel and power. Research shows that a 5% increase in furnace oil prices results in a 1% decrease in the gross profit margin. Dumping also represents itself as a risk factor as Pakistani cement industry is exposed to the dumping by Chinese cement manufacturing companies. Exchange rate changes also pose a risk factor as a depreciation in the Pakistani Rupee would make Pakistani exports more competitive while the cost of manufacturing would also rise due to the component of Forex being high in the form of fuel, transport, and capital. Population growth also affects demand for cement as a higher growth rate in population will cause housing demand to increase and more demand for and use of cement.

PEST Analysis: The “P” in the famed PEST analysis stands for political and the Pakistani government over the past years has done a lot to try and make policies that they thought would help Cement industries grow in Pakistan. However, most of these policies have failed as many privatization efforts have just lead to rising prices and layoffs in the industry. Other government policies have included capacity taxation ending which reduced special incentives for industry growth. Taxes and duties increasing on imports have also caused freight to vary greatly between different places. The price of furnace oil has also been allowed to increase by the government, which has increased the cost of production. The government also has increased taxes on imports which allows a great chance for imported inflation and thus that does not benefit the local cement producers, and causes cost pushed industries. The “E” in PEST means economic analysis, which basically refers to market conditions in the local market as well as market conditions in the international market. The local market has recently taken a huge turn as now the North has completely self-sufficient cement production while decreased demand for cement in the South has resulted in the newly found excess of cement being imported. This comes as a result of huge demand for cement coming from countries that have cement deficiencies like Bangladesh and Sri Lanka. The local market for cement is thus one that is tightly competitive with prices of all firms staying similar and perfect information, as the products are all homogeneous, and the same in quality. Therefore marketing would only really be useful in reminding customers of the existence of the company.

The second part of PEST is “S” and it stands for social but since cement industries have a very little social impact, it will not be expanded upon. Finally, the “T” in PEST represents the technological analysis of the industry. The cement industry is greatly capital based and this is necessary for the importance of technology when it comes to producing up to date, high-quality cement. However, the government has not been too helpful with that as they have not been very willing to invest in technological development, and they have almost consistently increased electricity prices and have increased tariffs on electricity and electrical goods. However, this does also have a plus side, because if technological advancements are too slow, cement companies without a lot of spare capital would have to go out of business as their products would be worse in quality, in a highly competitive market. 

Contribution to the National Exchequer: The cement industry, every year, gives Rs. 15-20 billion to the National Exchequer. The frequent increases in taxes create a problem for domestic cement manufacturers as they are made to appreciate their prices time and time again, which in turn increases the lack of stability in the form of fluctuating prices. This has made the demand for cement drop. The low demand is also caused by extremely high and rapidly growing excise duties. Apart from excise duties, the industry also adds to the state revenue in the form of Provincial royalties on limestone, gypsum etc, Import duties on spares and parts, Octroi on all items purchased and Excise duty on all raw materials.

Sources: Major Sources:- 1. Pakistan Economic Survey 2015-16 (Ministry of Finance).

Minor Sources:- 1. Analysis of Pakistani Cement Industry " A Report " Ravi Magazine.

                           2. Cementing Growth " Prospects for Pakistan’s cement industry -                                    Aurora Dawn.com.

                           3. Pakistan " Cement industry news from Global Cement " Global Cement.com


© 2016 Ibrahim Hoti



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very informative. well researched and nicely written. bohat achaa hai.

Posted 1 Year Ago



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Added on June 23, 2016
Last Updated on August 3, 2016

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Ibrahim Hoti
Ibrahim Hoti

Islamabad, South Asia, Pakistan



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