The Pakistan Cement Industry is thriving in recent years, driven by steady growth in cement despatches. The industry has been a major contributor to the country’s economic growth, mainly through local sales, though exports have been increasing at roughly the same pace. Although cement exports haven’t recovered their peak of almost 11Mt in 2009, they have continued to rise steadily since the mid-2020s.
Expansion of Pakistan cement industry
The Pakistan cement industry is planning to expand by almost 95 percent in the coming years. This is because of rising demand for cement, especially in Punjab. The industry has also anticipated a revival of construction activity, following the announcement of a generous housing package by the prime minister last year. Other factors driving the industry’s optimism are resumption of work on mega infrastructure projects and the CPEC project.
The government has touted this development as a major indication that the economy has turned around. It is estimated that cement demand will increase by four to six million tonnes per annum in the coming years. That means two to three new cement plants are needed to meet the growing demand. In the last three decades, the cement industry has grown by seven to eight percent.
Although the industry faces a variety of challenges, it continues to contribute significantly to the economy of the country. The country has a large middle class and is the fifth most populous country in the world. With its growing population and strong demand for cement, Pakistan cement manufacturers will have to stay on top of their game.
There are currently 19 cement companies in Pakistan, with a total of 24 cement plants. The industry is geographically divided into two regions: the North, which includes Punjab, KPK, and AJK, and the South, which includes Sindh and Baluchistan.
Exports of Pakistani cement
Pakistani cement manufacturers are expanding exports to a variety of markets. These include India, Africa, and Afghanistan. However, the United States has become one of the country’s biggest cement buyers. Growing exports could help Pakistan in its current balance of payments crisis. The company has entered the United States market as the first Pakistani cement company.
The government has introduced an incentive package to support the construction industry. This incentive package is expected to increase FDI and LTFF, which bodes well for the construction industry. In addition, according to the latest statistics, the Cement industry registered its highest Y-o-Y growth of 44.6 percent in March FY2021, demonstrating a massive increase in both exports and local consumption. Last year, the industry exported 3.5 million tonnes of cement, while domestic consumption rose 42 percent.
Exports of Pakistani cement to Afghanistan are down sharply this year. In the first ten months of the current fiscal year, Pakistan exported 405,000t of cement to Afghanistan, a decrease of 34% from the previous year. However, exports to the UAE, Singapore, and Qatar rose sharply. The Pakistani cement industry is still facing tough competition in these markets as the cost of freight is high. Moreover, the country has had to compete with cheaper Iranian cement, which is now cheaper than its own counterparts.
Despite the challenging economic situation, the Pakistani cement industry has achieved a significant milestone by successfully acquiring a new export market in the US. The company, DG Khan Cement Company Limited, one of the largest cement producers in the country, has signed a deal with an American group to export 0.6 million tons of cement to the United States next year. The company is expecting the volume to double in the next fiscal year, as well.
Demand for Pakistani cement
With the economy in recession, demand for Pakistani cement is in decline. As a result, investment is shrinking and exports are falling. Cash flow is also in a crisis. Production capacity has increased 16 per cent a year in the last five years, but demand is not meeting the supply.
The government nationalized the cement industry in 1972. The State Cement Corporation of Pakistan (SCCP) established five cement plants with installed capacity of 1.8 million tons per annum. After the cement industry was nationalized, price controls were implemented. The cement industry had a very strict regulatory regime. It also had a monopoly on the production of cement, which reduced its production cost.
The cement industry in Pakistan uses two distinct processes to produce cement: wet process and dry process. The wet process involves feeding raw materials into the kiln in slushy form, while the dry process involves the feeding of raw materials in dry powder form. The dry process requires less energy to raise the temperature.
The cement industry in Pakistan is facing a challenge from competition from European companies. Previously, the country sold mostly to regional markets, but in recent years, the US has emerged as the largest market for the cement produced in Pakistan.
Imports of Pakistani cement from Afghanistan
Imports of Pakistani cement from Afghanistan have been sluggish in recent years, partly due to the political unrest in Afghanistan and partly because of the high cost of cement in Pakistan. Afghanistan has also been suffering from high commodity prices and high inflation, which have also lowered its demand for cement. However, there is good news for cement producers as the country’s cement exports have grown by 19% in FY21.
Afghanistan has been importing almost all its domestic cement needs from Pakistan and Iran, with Pakistan accounting for nearly ninety percent of the total. According to a recent analysis by Commodity Inside, the country imported 5.1 million tonnes of cement in 2010 and 89% of that came from Pakistan. This is roughly the same percentage as it was in 2009, when Afghanistan boosted cement exports to nearly 11Mt. However, the imports have been decreasing since then.
In response to the spike in the cost of coal, Pakistan cement manufacturers may choose to import coal from Afghanistan. Coal from Afghanistan is cheaper than coal imported from other countries, and Pakistan cement companies may buy cheap coal in order to boost their margins. However, there is some concern over whether this coal can meet Pakistan’s needs.
Two companies in the country are facilitating the imports of coal from Afghanistan. These companies are located in the Dara-e-Soof and Sang Dara districts in the north of the country. An Afghan analyst says the companies have been pressured by the Pakistani military and its intelligence agency to ensure that coal exports are expedited.
Impact of China on Pakistani cement industry
The Pakistan cement industry is spread over two different zones, with the North Zone encompassing the provinces of Punjab, Khyber Pakhtunkhwa, and Azad Kashmir, and the South Zone encompassing Sindh and Balochistan. Combined, these zones account for approximately one-third of the country’s rated cement capacity. The demand for cement in each zone is primarily derived from housing projects and new residential units in urban areas.
In Pakistan, cement factories are unable to export their output due to high transportation costs. As a result, the APCMA has urged the federal minister of finance to release PKR 270 million for inland freight subsidies for cement exports. Moreover, China’s cement industry is the world’s largest and is responsible for about 60% of the global cement consumption in 2017. In contrast, the US cement industry is just 2% larger than China’s.
China has been a significant source of growth for Pakistan cement industry. The country has the fifth-largest population in the world and a large middle class. As a result, Pakistan cement manufacturers will be closely monitoring GDP growth and the demand for cement in the country. In recent months, industry players have begun a gradual increase in capacity utilization, which is an indication that domestic demand is increasing.
The Chinese investment in Pakistan’s cement industry has been enormous. This investment is largely responsible for the recent boom in the construction industry. It is expected to grow by 2.4% a year over the next few years. With infrastructure projects under way and the CPEC, China is creating opportunities for Pakistan’s cement industry.
Recommended readings:
- Building Materials Supplier in Pakistan
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All Pakistan Cement Manufacturers Association
Pakistan Environmental Protection Agency
PIBT Pakistan International Bulk Terminal Limited
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