Pakistan central bank forecasts large cement capacity expansion

Pakistan's cement industry is currently undergoing a major transformation, as a number of players are planning capacity expansions at an estimated cost of US$2.12bn between FY18-21. According to State Bank of Pakistan's special report, almost half of the players in the industry have so far announced capacity expansion to 23.4Mta towards the production facility – a staggering increase of about 50 per cent in next few years – to reach around 72.8Mta.

More than 3Mta cement capacity has already been added during FY18. The key factors behind this extraordinary expansionary drive in cement industry include:

Continued activity under CPEC related projects
The prospect of growing cement demand are stemming from CPEC related project which include construction of an integrated road infrastructure, modernisation of railways and development of Gwadar city, seaport and airport. Moreover, the development of special economic zones across the country may also sustain demand for cement going forward.

Increased focus on development spending by the government
The demand for cement is also likely to remain high as government has a planned numerous mega projects. Mega projects in the water and power sectors include the Dasu, Diamer Bhasha5 and Bunji multipurpose projects, and major rehabilitation and expansion works at the Mangla, Tarbela and Warsak power stations. Large highway and motorway projects are also planned.

Huge construction activities due to housing deficit
Persistent housing shortages continue to pressure demand as bridging the housing supply-demand gap requires large volumes of cement and related construction materials.

A healthy profit margin is another important factor that helps the industry to undergo capacity expansion. At present, there are 24 manufacturing units operating in the country with a total installed  capacity of 49.4Mta. The industry operates in two separate, northern and southern zones with northern zone representing around 80 per cent of the total production capacity and sales. The manufacturers in the south zone have more room for revenue diversification as they can tap a number of export markets (via sea). The export potential for manufacturers in the northern zone, however, is limited to Afghanistan and India only.