This week CemNet reported that Sri Lanka saw a 56 per cent rise in cement imports, which reached record levels in May, while monthly domestic production remained stable at 0.22Mt. It may appear that the country's construction sector is again buoyant following a slowdown in the first half, when Tokyo Cement Co (Lanka) Plc reported 1H18 losses due to weaker construction activity resulting from delayed projects. In addition, both INSEE Cement and Tokyo Cement Co (Lanka) Plc applied for a cement price increase to LKR960/50kg bag (US$5.94) in March to cover the cost of rising raw material costs. So, what are the prospects for the industry going forward?

Triple body blow
The cement demand from government construction agencies fell in 2017 as the delayed elections had a knock-on effect of holding back local budgets, while drought and currency depreciation gave the cement sector a triple body blow. Tokyo Cement said that for the first time in a decade, national demand for cement did not see any growth in 2017 and group sales slipped two per cent when compared with 2016 sales. As a result, domestic cement production decreased by 4.6 per cent and imports by 7.1 per cent.

Fighting back
Import data for May 2018 does suggest a possible resurgence for cement demand, but the local cement producers remain under pressure. As Paul Heinz Hugentobler, Siam City Cement chairman (INSEE), explained in June, the Thai-based company cannot afford to take it easy as the competition is heating up. "A sum of over US$20m will be invested in addition to US$200m during the past two years to boost cement production in the country," explained Mr Hugentobler.


Three ready-mix cement plants are to be built in Peliyagoda, Ratmalana and the Colombo suburbs, Mr Hugentobler added. The company's cement capacity is also being complemented with a new US$50m grinding plant that is due to be opened in Galle Port this month. This plant will have a capacity of 0.45Mta and INSEE Cement is investing a further US$3m in safeguarding the surrounding environment in collaboration with Sri Lanka Ports Authority. Technical consultants for the project are Switzerland-based CemCon AG, which has given assistance with equipment selection, onsite factory acceptance testing,  pre-installation and post commissioning.

INSEE Cement is also equipping its Ruhunu cement plant with a cement bag palletiser to lower bag breakages and reduce customer waiting time, helping the company respond quicker to market fluctuations.



Meanwhile, Tokyo Cement Co (Lanka) Plc has been employing Providence Global's enterprise resource planning (ERP) system throughout its business units, including its ready-mix cement network and the Trincomalee cement plant, which had its cement capacity raised to 2.8Mta in 2017. The ERP project fully integrated the company's supply chain management and warehouse operations. Further cost savings will be made by the third biomass power unit – an 8MW facility brought online in 2017 – and the expansion of the jetty at the Trincomalee cement plant to accommodate larger vessels.

Improving conditions and government assistance
In addition, there are signs of improving conditions, particularly in the bulk cement segment. As recently as June, INSEE CEO, Nandana Ekanayake, stated that while bagged cement sales had slowed due to the prolonged drought, the bulk cement sector shows positive results. Therefore, he expects 6-7 per cent growth in cement demand over the next two years.

This demand forecast will be bolstered by the government plans to build more than 3000km of roads, including flyovers and expressways, as well as the Colombo Port City project – which will all need quantities of high-grade cement.

Moreover, President Maithrippala Sirisena instructed officials to streamline and accelerate infrastructure development programmes in the north and east of the country this week, following complaints that investment in these regions was being neglected.

To further support domestic supply, the president is encouraging the reopening of the Kankesanthurai cement plant. The factory was previously run by Lanka Cement, which started production at the site in 1950. The plan is to import clinker for grinding at the plant, rather than re-open the Kankesanthurai quarry.

Targeting bagged cement imports, but clinker imports to stay
With the new grinding plant at Galle coming on stream soon and following Tokyo Cement's expansion last year, it is likely that the domestic cement industry will be better placed to serve the domestic market with local product, rather than relying on imports, which ammounted to 5.66Mt in 2017. However, until Sri Lanka expands its clinker capacity, these facilities will still rely on the import of increasing volumes of clinker.