This week saw further evidence of resurgent growth in Pakistan’s cement industry as dispatches rose 10.6 per cent YoY. With the All Pakistan Cement Manufacturers Association (APCMA) relating that the growth in cement sales was solely down to higher domestic demand, there is much for the country’s cement producers to be enthusiastic about going forward, especially if they have strong representation in the north. Overall, per capita cement consumption is one of the lowest in Asia at 166kg, offering plenty of up-side.
As announced in the Federal Budget for 2016-17, the government forecasts a gradual rise in GDP to seven per cent by FY18-19, while the Public Sector Development Programme (PSD) expenditure is expected to rise from INR348bn to INR661bn in the current government’s third year and to INR800bn in FY16-17. INR32bn is being invested in water projects, including many northernly located hydropower dams and canal building projects, where large cement volumes will be required. Some INR188bn will be directed at highway construction up 18 per cent on 2015. Separately there is also the China-Pak economic corridor scheme that will see US$6m invested in roads and rail networks as well as the development of Gwadar Port.
Housing is also central to growth in the construction sector with the State Bank of Pakistan (SBP) estimating a backlog of approximately 9m units with an annual addition of 300,000 units to the current backlog.
Green light for expansion projects
The cement industry has been responding to this increasing building activity by starting expansion schemes. The Ministry of Finance has claimed that the sector saw US$1bn of investment attracted in the current FY16. Cherat Cement, Attock Cement, DG Khan Cement and Lucky Cement have announced capex projects and the country’s cement industry is expected to see capacity rise from 45Mta to 53Mta in the next two to three years. Per capita consumption is one of the lowest in Asia at 166kg according to Credit Suisse.
Bestway Cement has the largest market share in the domestic market at 18 per cent (8Mta cement capacity), but it is closely followed by Lucky Cement on 17 per cent or 7.7Mta of cement capacity. Bestway became the lead producer when it acquired Lafarge Pakistan’s 2.5Mta Chakwal plant last year.
Lucky Cement is well situated with units in the north and south to take advantage of the rising cement demand and has plans for a 2.3Mta greenfield plant in either Punjab or KPK province.
Cherat Cement is undergoing a brownfield project at Lakrai cement plant raising capacity from 1Mta to 2.3Mta.
The southern producers are under pressure as exports fall
It is in the south though where questions have been asked about whether new capacity is really necessary, according to analysts Next Capital. While capacity utilisation is high at around 90 per cent, this has been kept up in this region with exports that are now in decline. Moreover, there is a potential threat of imports from both China and Iran. To protect its margins, Attock Cement has awarded Hefei Cement Research and Design Institute to carry out the construction of a 4000tpd integrated plant in Hub, Balochistan. Similarly, DG Khan is also looking to expand capacity in Hub with a new 2.5Mta plant. FLSmidth has been awarded the turnkey contract to build this works, including the largest two-pier kiln (dia 5.75m x 69m) that the company has been requested to make.
Regarding cement exports there is general agreement that further declines are expected. Traditional markets in Afghanistan, west Africa and South Africa have seen capacities and competition rising and sea trade for Pakistan exporters has been falling for the last five years. Lucky Cement has identified new market potential in Sri Lanka while it has begun establishing overseas capacity in DR Congo and Iraq.
