Mohammed Arifeen
Both sides discussed the potential of bilateral trade between the UK and K-P, says a statement issued by the British High Commission.
The chief minister explained the province’s new industrial policy under which the government offered several incentives to local and foreign investors. CPEC is set to attract $150 billion investment
He offered his support and commitment to ensuring that the British firm’s cement project could be a success.
Khattak called the project an important symbol of greatly improved business environment in K-P.
The British investment will help create local jobs and stimulate the local economy. The UK recognizes the dramatic improvements in K-P and it look forward to welcoming more British companies to the province.
Cement demand is continuously growing in Pakistan with new infrastructure projects, particularly those being undertaken under the China-Pakistan Economic Corridor. Many cement manufacturers of the country have announced expansion plans with investments of up to $1 billion to meet the rising consumption needs.
“We are delighted to be investing in a new cement plant in K-P,” said Nadim Khan, CEO of Asian Precious Minerals. “We are able to do this because of the improved law and order situation, the pro-business stance and good governance policy displayed by the provincial government.”
He said the company would construct a model, state-of-the-art and environmentally friendly cement plant.
British Trade Director for Pakistan Belinda Lewis said Asian Precious Minerals had recognized the improved security and investment climate in K-P and Pakistan more generally and recognized the clear potential for future growth in the country.
“I hope other UK companies will follow the example of APML (Asian Precious Minerals) and also regard Pakistan as a significant investment opportunity,” she commented.
Arif Habib Group to invest Rs25 billion in new cement plant
Arif Habib Group, one of the largest private-sector conglomerates in Pakistan, has said that it is going to invest Rs25 billion (or $235 million) in a new cement plant that will be completed in the next two years.
The new plant will take the installed capacity of Power Cement to 3.37 million tons from its current capacity of just 0.9 million tons.
Cement demand is growing in Pakistan and it is expected that the China-Pakistan Economic Corridor (CPEC) will further increase its pace.
Owing to energy shortages, Pakistan’s gross domestic product (GDP) is not growing at the pace it should. Some experts believe economic growth can increase by an additional 2 percent annually if Pakistan is able to manage its energy problem.
“We believe CPEC is going to help reduce the energy crisis in the next two years and this will translate into a healthy economic growth as well as higher cement consumption,” Beg told reporters during a visit to the cement plant.
“Cement demand was already growing before the launch of CPEC, which means that demand is there fundamentally, and that it’s not a one-off because of CPEC-related infrastructure projects,” he stressed.
Installation of filter bag house equipment
Power Cement has recently invested Rs350 million in installing environment friendly bag house equipment to reduce dust emissions during which the company had to significantly reduce its cement production.
Company officials say the plant is now capable of reducing dust emissions to just 17 milligrams per cubic metre (mg/Nm3), which is much lower than 300 mg/Nm3 – the specified Environment Quality Standards applicable in Pakistan, and the World Bank’s 100mg/Nm3 for old cement plants.
The company has a very old plant, but it was taken over by AHG in 2012. Power Cement was established as Private Limited Company on December 1, 1981 and converted into a Public Limited Company on July 9, 1987.
It is one of the smallest cement companies with an installed capacity of 0.9 million tons, a tiny fraction of over 45-million-ton installed capacity of the cement industry as a whole, according to the All Pakistan Cement Manufacturers Association, a lobbying group. The company’s plant is in Nooriabad Industrial Estate, District Dadu, Sindh, which is about 95 kilometers north east of Karachi.
Cement profits fall amidst rising sales
The profitability of the cement industry has declined despite rising local sales, latest data shows.
Manufacturers posted an earnings decline of three percent year-on-year – with pre-tax profits down 15 percent in July-September versus double-digit growth of 17 percent and 32 percent seen in the comparable quarters of 2016-17 and 2015-16, respectively.
Sector sales grew 11 percent year-on-year in July-September, mainly supported by 21 percent growth in local despatches (total volume up 15 percent), due to robust demand from construction and infrastructure projects ahead of the general election next year.
The construction sector’s credit off-take was up 48 percent year-on-year by September.
Gross margins were recorded at 32pc, down nine percentage points year-on-year, in July-September, the lowest in 21 quarters, due to higher input costs. Coal prices averaged $87 per tonne, up 34 percent year-on-year, while gas prices increased around 25pc in July-September.
The high-profitability growth period of cement producers no longer holds as the price pressure kicks in owing to upcoming capacities and an inability of manufacturers to pass on rising input costs.
During July-September, net retention prices of producers were down by an average of 4 percent or Rs13 to Rs312 per bag. Volatility in prices was mainly due to the price pressure in the north region after the commissioning of Cherat Cement’s 1.3 million tonnes of brownfield expansion in January.
While pre-tax profits were down 15 percent year-on-year in July-September, net earnings of cement producers fell only 3 percent due to 10 percentage-points lower effective tax rate year-on-year, which contained the decline in profitability. Huge tax benefits given to D.G. Khan Cement on account of the plant expansion led to a lower effective tax rate.
Upcoming capacities of Attock Cement, D.G. Khan Cement and Lucky Cement will translate into a cumulative addition of 5.3m tonnes per annum in the south zone in July-December. The price pressure might appear soon in the south zone, which has remained unaffected so far, he said.
Topline Securities conducted this analysis based on a sample of 15 listed cement producers (out of a total of 18), representing 99.7 percent of cement companies’ total market capitalization.
Cement capacity utilization at 20-year high
The cement industry utilized over 93 per cent of its installed capacity in July-October, according to a spokesman for the All Pakistan Cement Manufacturers Association (APCMA).
This was the highest capacity utilization in the last 20 years.
However, a capacity of 1.08 million tonnes still remained idle, which could have been utilized if the government adopted export-friendly policies.
Total cement despatches in the first four months of 2017-18 surged 16.53pc to 14.57million tonnes year-on-year. Exports fell 16 percent over the same period.
In October, total cement despatches surged 19.7 percent to 4.22m tonnes from a year ago.
Due to high local demand, sales in October rose 25.6 percent to 3.78m tonnes year-on-year while exports dropped 14.55percent to 0.44m tonnes.
Higher cement consumption is the sign of a growing economy. It has a positive impact on more than three dozen industries that are connected with the construction sector
Cement Domestic demand
The cement demand in the north zone remained surprisingly high. Cement consumption in the region stood at 3.15million tonnes during October. It was for the first time that the north zone consumed more than 3million tonnes of cement in a month. In October 2016, the domestic cement consumption in the north zone was 2.49million tonnes.
Cement demand in the south region also increased from 0.52m tonnes in October 2016 to 0.63 million tonnes last month.
The APCMA spokesperson said the industry is operating in a stiff regulatory environment and is surviving only because it has upgraded its technology to face challenges head-on.
Weak border control and lax customs vigilance allow the entry of cement from across the border at unfair valuations, hurting the local cement industry, he added.
The government is urged to lower the excise duty on cement to boost demand. The duty on coal imported by the sector should also be brought on a par with other sectors.
Cement exports continue to slump, this time down 45 percent
The healthy profit was primarily due to a historically high growth in sales volumes, reduction in coal and power costs and generation of low-cost electricity from the company’s furnace oil-based captive power plant and waste heat recovery plant, which started producing electricity from April 1, 2016.
Large-scale infrastructure development projects under the China-Pakistan Economic Corridor (CPEC) and a hefty allocation for the Public Sector Development Programme will further enhance cement demand in domestic markets in the foreseeable future, which will result in handsome revenues and profits, according to the company’s annual report for 2016. At the PSX, Kohat Cement’s stock price rose Rs3.85 to close the day at Rs246.69 with a volume of 106,800 shares.
Dewan Cement’s profit up 207 percent to Rs516 million
For a long time, the cement industry has depended on exports, but for the past few years growing domestic demand has been providing vital support. This is happening mainly due to improving macroeconomic indicators and higher construction activities in the country.
Growth prospects for Pakistan’s cement industries
More than half a dozen cement companies are going through an expansionary phase with combined investments of over $1.5 billion.
Cherat Cement, Attock Cement, DG Khan Cement, Lucky Cement, Power Cement, Bestway Cement and others have announced expansion plans and all these plants will come online in the next two to three years.
Pakistan’s cement industry is going through extraordinary times and it is expected to grow at a rapid pace in the next couple of years.
At present, the installed capacity of the industry is 47 million tons, according to the All Pakistan Cement Manufacturers Association.
Owing to the construction boom, the capacity utilization of cement plants is improving and is now close to 88 percent which is the highest in 11 years.
Cement is the essential constituent of construction activity. Presently, the total installed capacity of 28 cement plants is 17.312 million tonnes in Pakistan. The industry witnessed a steady growth rate of 8 percent until 1994. Before 1994, the country was facing shortage of cement that was met through imports. In 1999, the country’s total production was estimated at 10.384 million tonnes.
In the past three years the cement industry has been facing a crisis situation. With a share of Rs40 billion per year in the GDP, the cement sector contributes Rs15-20 billion per annum to the national exchequer.
Pakistan offers great opportunity to capture regional markets due to its geo- strategic location on the confluence of South, West and Central Asia.
The main Pakistani cement manufacturers including Bestway Cement, Lucky Cement, and D. G. Khan Cement have set up new plants for further expanding their production capacities.
Pakistan produces four types of cements and the raw material – gypsum, limestone, clay/shale – used for cement manufacturing is found in abundance in the country.
Pakistan plans to further enhance its production capacity and fully explore the major markets including India, Russia, UAE, Yemen, Sudan, Ethiopia, Algeria and other North African countries for the purpose.
Due to the shortage of cement in the region and rising demand from India and North African countries, Pakistani cement manufacturers are ready to benefit from the current ready cement boom in terms of high export price.
The current demand-supply situation in the cement sector indicates excess cement production capacity. During the past one decade, the cement manufacturing has been buoyant in Pakistan and the industry has shown tremendous growth in recent years.
Owing to the increasing local and export demand due to rising construction activities and regional cement shortages, Pakistani cement sales jumped to exceptionally high. The cement export to Iraq, Iran, India, Afghanistan and UAE witnessed an exceptional growth in the past one decade.
Major markets for Pakistan cement exports were Afghanistan and the UAE. The remarkable performance of cement sector was due to the enhanced installed capacity, which had more than doubled during last five years, as well as to the rise in local demand and strong external demand.
Pakistan has already been supplying cement to Afghanistan for the last many years. It has been the key player and a traditional supplier of cement in Afghan market.
The cement units in northern areas of the country continued to feed the Afghan market by supplying up to 2.5 million tons. Like Afghanistan, Pakistani exporters have been exporting cement to the war-torn Iraq where the demand for cement has been higher for reconstruction work.
At present, India and China are enjoying a robust position in the regional markets as both countries are able to offer competitive prices.
The cement manufacturers in China and India enjoy state subsidies for exports. The subsidies lower their costs of production. Pakistan needs to offer local manufacturers the similar subsidies for exports to regional markets to make them competitive.