Cement

An Overview

©The Pakistan Credit RatingAgency Limited March 2021

Table
OMC |ofGlobal
Contents
Market

Contents Page No. Contents Page No.

Large Scale Manufacturing 1 Business Risk 12
Production Process 2 Financial Risk 14
Global Industry 3 Rating Curve 16

Industry Snapshot | Local 4 Duty & Taxes 17

Porter Five Forces Model 18
Supply Side | Cost Break up 5
SWOT 19
Supply Side | Coal 6
Outlook 20
Supply Side | Production 7
Demand Side | Local 9
Demand Side | Export 10
Demand Side | Price Dynamics 11
Cement
Global Industry
• Overview: Cement is an essential building block of development. The Sector has a huge economic impact due its long and diverse
supply chain and contributes ~0.4% to the global GDP and ~7.7% to the world employment.

• Production: Global cement production is regionally concentrated. Top five countries account for nearly three quarters of the world’s
cement production which hovers around ~4.3 bln tons and around ~45% of the global capacity is occupied by the top 10 players.
China leads with a ~57% share, followed by India (~8%), Vietnam, USA and Indonesia. Globally, more than 1,000 cement producers
operate over 2,300 integrated cement plants and 600 grinding stations.

• Consumption: The global cement consumption has been estimated to decline to ~3.9bln tons in CY20 from ~4.1bln tons in CY19 (a
dip of ~5% YoY) owing to the outbreak of covid-19 pandemic.

• Exporters: Total world cement exports in FY20 were US$ ~11 bln and Vietnam was the largest exporters (~11.5%) followed by Turkey
(~7.7%), Thailand (~6%) and Canada (~4.8%). Pakistan’s share in world exports of cement in FY20 was ~2.3% and was ranked as the
11th largest exporter in the world.

• Amid covid-19 crisis, global cement consumption has witnessed a decline across almost all regions except China. Average utilization
capacities of cement production have remained around ~70% for five years prior to the advent of covid-19. The utilization levels fell
to around ~60% in CY20 due to lower production requirements. Nonetheless, global demand is expected to rebound and return to
pre-covid levels due to easing of covid-19 induced lockdowns across the major economies. China and Asia are expected to remain
the drivers for demand in the short to medium term.
Cement
OMC | Global Market
Global Industry | Top Players
• The cement industry is one of the important sectors globally due to Top Ten Cement Companies
the industry’s massive stand alone output and being the essential
part of other industries worth trillion of dollars at global scale such CNBM (China)
as chemicals and constructions.
CRH (Ireland)

• Global cement consumption is estimated around ~4 billion tons,

HCMLF (France)
contributing ~0.4% to global GDP and is also one of the largest
employer of global workforce. AHCHY (China)

• China is the world’s largest producer and consumer of cement as it Cemex (Mexico)

account for ~58% of total global production, which is eight times

HEI (German)
more than world’s second largest producer, India (~8%).
VEBM (Brazil)
• Due to high capital intensive nature of the business, the global
cement market is dominated by big companies. Top ten largest CARCY (China)

cement companies have estimated market share of ~50%.

TPE (Taiwan)

• Like other industries, covid-19 lock down had serious implication for Ultratech (India)
the cement industry as well, as the sector output is estimated to be
reduced by ~6% during FY20. But the demand recovered sharply - 5 10 15 20 25 30 35 40

post covid-19 lockdown. Revenue US$ billion (2019)

Source: Yahoo Finance, Global Trade 3

Cement
OMC
Production Process

Mining of raw Grinding raw Raw meal is Hot clinker exits Cooled clinker Manufactured
material material to a fine heated at a from kiln will enter mixed with gypsum cement then
including powder, called a the clinker cooler and other additions, stored in silos
temperature of they will be grinded
limestone, clay, raw meal. to reduce its before packaging
~1,450 °C in a temperature from into fine and
gypsum and and sale to end
cement kiln to 1450 °C to 100 °C . homogenous
others. consumers.
produce clinker. powder, cement.

Source: PACRA Internal Database 2

Cement
OMC | Global Market
Large Scale Manufacturing- Overview
• Large Scale Manufacturing (LSM) is essential for economic growth considering its linkages with other sectors. It contributes ~9.5% to
Pakistan's GDP. During FY20, the country’s overall GDP contracted by ~0.4% on account of the Covid-19 pandemic spread (FY19: Growth
~1.2%). Covid-19 lockdown and overall economic slowdown had severe implication for LSM as well, as its registered negative growth of
~10.17% during FY20 (FY19: (~2.32%)).

• The government of Pakistan and SBP announced series of incentives during 4QFY20 to support businesses and to stimulate business activity.
The stimulus measures yields positive results for the economy, as the LSM posted a growth of ~8.2% during 1HFY21 (6MFY20: (~2.7%)).

Crops (35%)
Agriculture
(19%)
Others(65%)
Economy

LSM(78%) Cement (5.3%)

Manufacturing
SSM (15.2%)
(13-14%)
Slaughtering
Services
(6.8%)
(67-68%)

Source: Pakistan Economic Survey 1

Cement
OMC | Global Market
Industry Snapshot | Local
• Cement is a significantly important sector of the country, and is also vital for its economic Overview FY19 FY20
development. The country’s infrastructural developments and construction activities
alongside multiple allied sectors (steel, wood, tiles etc.) are directly influenced by the Gross Revenue (PKR mln) 413,879 345,054
performance of the cement sector.
Contribution to GDP 1.18% 0.85%
• Overall size of the sector was recorded at PKR~345,054mln during FY20 (FY19: Sector Players 17 17
PKR~413,879mln) down ~17% YoY, due to reduced retention prices in the north region
Structure Regulated & Listed
amid increased supply and reduced exports.
Production Capacity mln tons 66 66
• The Cement Sector is composed of 19 companies of which 16 companies and 24 plants are Offtake Local mln tons 40 40
operational. The Sector is divided into two regions; North and South, with North covering
areas of Punjab, KPK and AJK and South including areas of Sindh and Baluchistan. Export mln tons 7 8
Total Offtake mln tons 47 48
• The cement sector is organized and oligopoly in nature, with most of the players listed on North Region (Avg Price/Bag) 580 526
the PSX. Market capitalization of the sector is recorded around PKR~690bln.
South Region (Avg Price/Bag) 621 673
• Overall economic growth and government’s spending on development projects are the Securities and Exchange
Regulator
main drivers of the sector’s growth. Commission of Pakistan (SECP)
All Pakistan Cement
Manufacturers Association
• Pakistan’s per capita cement consumption is around 182 kg whereas world average per Associations (APCMA)
capita consumption is recorded around 500 kg, more than double the consumption in
Pakistan, reflecting an immense potential for growth in cement demand.

Source: Pakistan Economic Survey, APCMA, PBS 4

Cement
Supply Side | Production
• Cement sector’s production capacity is recorded around ~64mln tons in
FY20 (~60mln tons in FY19), an increase of ~7% YoY. Almost ~76% of the Production Capacity
operational plants are located in the North Region, while remaining 70 100%
~24% capacity is located in the South Region.
90%
60
• The sector has witnessed some major capacity enhancement rounds in 80%
the last two decades, in anticipation of rising momentum of cement
demand in the country. The first phase was initiated in FY07, which was 50 70%
completed in FY12, the second phase was announced in FY13 and FY14
60%
against which almost all expansions achieved CoD up till March’20. 40
50%
• Lately, top five (5) cement companies have announced expanding their
30
production capacities which would add approximately ~18mln tons to 40%
the total cement production capacity of Pakistan, taking it up to approx.
30%
81mln tons. The expansions are expected to be completed by FY23-24. 20

20%
• The expansion cycles are based on a various number of factors. 10
Recently, promising demand from GoP projects such as Naya Pakistan 10%
Housing Program (NPHP), construction of dams, and CPEC related
0 0%
activities have encouraged the sector players to go into expansion. Also, FY15 FY16 FY17 FY18 FY19 FY20
the TERF facility has overall diluted the borrowing cost of projects,
Production Capacity (MMT) Utilization (%)
making it an attractive opportunity for the players to expand.
Cement
OMC | Global Market
Supply Side | Cost Break up
• Major raw materials used in cement manufacturing process are limestone, clay Manufacturing Cost Break up
Raw Material,
and gypsum. These raw materials, however, constitute a very small portion of
4%
the production cost – 4% (as represented in the adjacent pie chart) due to the
Packing
energy intensive nature of the process, which majorly constitutes fuel and
Material, 10%
energy cost.
Stores &
Spares, 4%

• Coal, being a cheap source of energy, is extensively used by the cement

Imported Coal,
companies in their manufacturing process and accounts for ~40% of the total
39%
production cost of cement. Meanwhile, fuel & power costs also contribute a
prominent portion of the total cost of production (~20%).
Fixed Cost &
Overheads,
• Majority of the cement manufacturers rely on imported coal to meet their 22%
energy needs, which implies their exposure to exchange rate movements as
well as fluctuations in international coal prices.

Other Fuel &

Power, 20%

Source: APCMA, PACRA Internal Database, Companies Financials 5

Cement
OMC | Global Market
Raw Material | Coal
• Imported coal constitutes ~40% to the total cost of production of the Coal Import
cement sector. 20,000 2,000

• Coal imports have witnessed an increasing trend over the period due 15,000 1,500
to increased production of cement and coal fired power plants.
10,000 1,000

• Coal imports in FY20 were recorded at USD~1,313mln with YoY 5,000 500
decrease of ~14% (FY19: USD~1,538mln), whereas the quantity
imported increased by ~5% during the same period. The decrease in - -
FY16 FY17 FY18 FY19 FY20
import bill despite higher quantities imported in FY20 is majorly
attributed to the freefall in coal prices amid Covid-19 outbreak (~23%). Coal Import (000 MT) Coal Import (US$ mln)

• Average coal price during FY20 was recorded at USD~67/MT down Average Coal and Crude Oil Prices
~23% YoY (FY19: USD~88/MT). Prices registered a slight downward 100
trend in 1HFY21 averaging around USD~65/MT. Average crude oil price 80
during 1HFY21 was recorded at USD~43/bbl (1HFY20: USD~60/bbl). 60
Crude oil prices are expected to average above USD~55/bbl during 40
2HFY21. 20
0
• Considering high correlation between crude oil and coal prices, average FY16 FY17 FY18 FY19 FY20 1HFY21

coal prices are also expected to increase in 2HFY21 in line with the Coal Pirce (US$/Ton) Crude Oil (US$/Barrel)
uptick in oil price.
Source: EIA, PBS, Index Mundi 6
Cement
OMC | Global Market
Supply Side | Production
Production Capacity FY20
• Companies in the South Region have to incur low transportation costs Company Region
Production
Capacity (000MT)
Lines
while transporting imported coal from port to their plants. Moreover, due
Bestway Cement Limited North 6 9,853
to their close proximity to the port, their access to export markets through 2,804
Askari Cement North 3
sea routes increases in comparison to their northern counter parts. Cherat Cement Company Limited North 3 4,536
Dandot Cement Limited North 1 504
• Although the companies in the North Region have to incur more Dewan Hattar Cement Limited North 2 1,134
transportation cost, these companies have more access to Afghanistan and D.G.Khan Cement Limited North 3 4,221
Indian market for Export. Fauji Cement Company Limited North 2 3,434
Fecto Cement Limited North 1 819
Flying Cement Limited North 1 1,197
Gharibwal Cement Limited North 1 2,111
• D.G.K Cement, Dewan Cement and Lucky Cement are the only companies 5,018
Kohat Cement Company Limited North 3
that have presence both in North and South Regions. Lucky Cement Limited North 5 6,810
Maple Leaf Cement Factory Limited North 3 5,670
Pioneer Cement Limited North 3 4,550
Total 37 52,660
Attock Cement Pakistan South 3 2,996
Dewan Cement Limited South 2 1,764
D.G.Khan Cement Limited South 1 2,898
Lucky Cement Limited South 4 4,900
Power Cement Limited South 2 3,371
Thatta Cement Limited South 1 577
Total 13 16,505

Source: APCMA, PACRA Internal Database 8

Cement
OMC | Global Market
Demand Side | Local
• Pakistan’s local cement dispatches for FY20 were recorded at ~40mln MTs PSDP and Cement Depatches
(FY19: ~40mln MTs). 45 1,800

• Cement demand is highly correlated to the GoP’s spending in development 40 1,600

projects through Public Sector Development Program (PSDP). Due to the
widening fiscal deficit, PSDP spending has significantly reduced in the past 35 1,400
couple of years. Development spending by the GoP was recorded at
PKR~1,155bln during FY20 as compared to PKR~1,584bln in FY18 with a 30 1,200
cumulative decrease of ~28%.
25 1,000
• Despite declining PSDP, local cement dispatches averaged around ~40mln MTs
in the last three years supported by CPEC related projects and increase in local 20 800
construction activity.
15 600
• To stimulate construction activity, the GoP has announced a construction relief
package of PKR~100bln during FY20. The package includes tax incentives, 10 400
waivers and subsidies for builders, developers and property owners.
5 200
• According to industry experts, one of the main incentives of the package is that
one that does not require people to declare their sources of income before - -
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
investing in construction related projects, which will increase private
investment in construction related projects substantially. Cement Dispatches (MMT) PSDP (PKR billion)

Source: APCMA, Constructech, Economic Survey, Dawn 9

Cement
OMC | Global Market
Demand Side | Export
• Pakistan exported 7.847 MMT of cement and clinker during FY20 (FY19: Major Export Market (000 MT)
6.541 MMT) up ~20% YOY basis. 5,000

4,000
• Historically, Afghanistan and India were major cement export markets for
Pakistan. Heavy duty on Pakistan goods were imposed by Indian 3,000

government in FY19 amid high political tension between both countries 2,000
which led to a suspension of Pakistan's cement exports to India. 1,000

• Export of cement to South Africa through sea routes was also decreased -
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
substantially after the imposition of anti-dumping duty by South Africa on
Afghanistan India Bangladesh Other
Pakistan’s cement products in FY16.

• Export of cement to Afghanistan have also decreased over the period due Export Mix (000 MT)
to influx of cheaper Iranian cement into the country. 15,000

• On the contrary, Export of clinker to Bangladesh has grown substantially in 10,000

the past couple of years, as Bangladesh’s cement industry relies on

imported raw material due to non-availability of raw material for cement 5,000

locally. Bangladesh’s share constitutes ~76% of the total clinker exported by

-
the country during FY20 (FY19: ~86%).
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Cement Clinker

Source: APCMA, 10
Cement
OMC | Global Market
Demand Side | Price Dynamics
• Cement prices are a function of the market demand supply dynamics. Variations in prices are generally dependent upon the behavior of major cost
components of cement production, including coal prices, exchange rate, fuel costs and freight charges. Export of cement to Indian market stopped
after the imposition of heavy duty on Pakistani products by Indian government at start of FY20. Decreased exports coupled with increased capacity in
the north region increased pressure on the prices. Price in the region remained further under pressure after the imposition of covid-19 lock down in
last quarter FY20.
• Uptick in construction activities post covid-19 lock down supported the cement prices. In the wake of improve capacity utilization, the prices in the are
expected to remain stable in the 2HFY21.
• As mentioned in table below, clinker is exported at very low price as compare to cement despite being advanced stage product, if not finished good.
Export of clinker is not very profitable for the companies on stand alone basis but it come with other additional benefits like increased capacity
utilization and availability of export refinance facility at subsidized rates.
Comparison of Local and Export Prices
Price Trend (PKR/bag)
800 Avg Prices in PKR/bag FY17 FY18 FY19 FY20
700
North
600 539 527 581 526
500 South
576 586 619 673
400
Export Clinker
300 405 318 391 397
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Export Cement
457 451 525 546
North Region South Region
Note: Export prices are adjusted for sales tax, FED and others.

Source: APCMA, PBS 11

Cement
OMC | Global Market
Business Risk
• Total revenue of the sector was recorded at PKR~241,538 million Figures in PKR mln Sector: Financial Highlights
during FY20 (FY19: PKR~289,715 million) with YoY decrease of Company FY16 FY17 FY18 FY19 FY20 1HFY20 1HFY21
~17%. Low retention prices during FY20 amid high competition led Sales 226,908 246,538 258,349 289,715 241,538 132,433 167,734
to decrease in sector’s revenue despite ~2% increase in total Cost of Sales 126,672 151,347 181,004 224,575 229,982 125,245 129,999
Gross profit 100,236 95,191 77,345 65,140 11,556 7,188 37,735
dispatches.
Operating Expense 12,008 12,872 14,243 13,695 11,440 6,613 4,219
Operating Profit 88,228 82,319 63,102 51,445 116 575 5,959
• FY20 has been a tough year for the Sector in terms of pressure on
Finance Cost 3,480.0 2,379 3,001 9,084 17,815 9,603 1,572
the margins on account of rising exchange rate, interest costs (for
most part of the year) and subdued demand. GP margins plunged Profit/(Loss) before Tax 84,748 79,940 60,101 42,361 (17,699) (9,028) 2,021
to as low as ~5% from ~22% in FY19. The benefit of low average coal Taxation 25,538.0 23,022 5,669 8,770 (4,700) (2,705) 9,729
prices during FY20 was eroded by high average exchange rate Profit/(Loss) after Tax 59,210 56,918 54,432 33,591 (12,999) (6,323) 28,006
during the period. Bottomline of the Sector also turned negative as
a consequence of shrunk demand and increased costs. Sector Profitability
50%
• Despite the dip, the Sector’s indicators have turned around well in
40%
1HFY21 with GP margin recording a ~27% growth during 1HFY21.
Increased retention prices, low coal prices and stable exchange rate 30%

during 1HFY21 are the major contributors. 20%

10%

0%
FY16 FY17 FY18 FY19 FY20 1HFY21
-10%

Gross Profit Operating Profit Net Profit

Source: APCMA, PBS, Companies Financial, PACRA Internal Database 12

Cement
OMC | Global Market
Business Risk-Outlook
• With a widened fiscal deficit, the PSDP spending has narrowed in the recent years Sensitivity Analysis
and is expected to continue at the same average. On the other side, the sector’s Figures in PKR mln (*except price/bag)
production capacity is continually jacking up in anticipation of ambitious initiatives
Change in Interest Rate 1% 2% 3%
such as NPHP, construction package and CPEC. Private investment in construction
activities is crucial in this scenario for the sector's revenue. With dispatches Impact on Profitability
picking up at a healthy pace, capacity utilization levels are expected to improve in 2,014 4,027 6,041
FY21 supporting cement bag price. Percentage of Sector's
4% 7% 11%
Operating Profitability
• Also, with the strengthening of crude and coal prices in International markets, the
manufacturers are expected to raise their prices likewise in order to keep their Change in Price/bag -PKR (Local) 30 60 90
margins intact. Coal prices are expected to remain rangebound in FY22 and FY23.
Impact on Profitability
28,331 56,662 84,992
• The sector’s profitability is highly sensitive to change in prices. As per estimates, Proportion of Sector's
51% 101% 152%
with other factors constant, a decrease of over PKR~60/bag in average retention Operating Profitability
prices has the potential to erode the operating profitability of the sector. Note: Profitability of the sector in 1HFY21 is extrapolated for calculations.

• Currently, interest rates are at historically low rates, as SBP slashed down interest rates from 14% to 7% as a proactive measure for support in
Covid-19 environment. The cement sector has benefited substantially from the low interest rates, which may increase in the coming periods as
the economy heads towards stabilization.

Source: APCMA, PBS, Companies Financial, PACRA Internal Database 13

Cement
OMC | Global Market
Financial Risk-Working Capital
• The sector’s working capital (WC) days were recorded at ~85 during FY20 (FY19: ~78 days) mainly due to increase in receivable days - ~14 days
in FY20 (~11 days in FY19). The sector experienced delays in payments due to halt in production activity in 4QFY20 after the imposition of
Covid-19 lock down.
• The resumption in construction activities post Covid-19 lock down resulted in revived construction activity in the country. Eventually, inventory
days reduced substantially from ~108 days in FY20 to ~98 days in 1HFY21.
• Reduced inventory days results in improved working capital cycle of the sector as the WC days of the sector reduced to ~73 days in 1HFY21
from ~84 days in FY20.

Working Capital Management

120

100

80

60

40

20

0
FY16 FY17 FY18 FY19 FY20 1HFY21

Payable Days Receivable Days Inventory Days Working Capital Days

Source: APCMA, PBS, Companies Financial, PACRA Internal Database 14

Cement
OMC | Global Market
Financial Risk - Borrowings
• According to the SBP Report, total borrowing book of the cement sector clocked in at PKR~185bln as at End-Feb’21, i.e., ~50% of the Sector’s
revenue in FY20. The capacity expansion cycles are majorly financed through external debt, which results in the sector’s borrowing book to
increase. Almost ~60% of the Sector’s borrowings are, therefore, long term in nature.

• The Sector is moderately leveraged (~47%). A leverage ratio ranging between 45%-50%, despite hefty CAPEX and debt financing, reflects good
capital formation.

• With new capacity enhancement on cards, the Sector’s leverage ratio may slide up in the coming periods, owing to additional long term debt
financing needs.

Gearing Ratio Borrowing Mix as at end 1HFY21

3% 9%
60% 51% 3%
50%
47% Export Financing
40% 44%
Import Financing
30% 35%
26% Short Term Borrowing
20% 20% Long Term Borrowing
19% 58%
10% Other
0%
FY16 FY17 FY18 FY19 FY20 1HFY21

Source: APCMA, PBS, Companies Financial, PACRA Internal Database, SBP 15

Cement
OMC | Global Market
Rating Curve
• PACRA rates 9 clients in the cement sector. Rating bandwidth of the sector is A- to AA-.

• Collectively PACRA rated clients makeup ~60% of the total sector in terms of its production capacity.

PACRA Rating Universe

5

4
Number of clients

BBB+ A- A A+ AA- AA AA+

Rating Curve

Source: PACRA Internal Database 16

Cement
OMC | Global Market
Duties & Taxes
Description Custom Duty
Additional Custom
Federal Excise Duty Sales Tax Income Tax
• Duty structure of the sector is
Duty designed to encourage local
PCT Code
Raw Material for production of the cement.
FY19 FY20 FY19 FY20 FY19 FY20 FY19 FY20 FY19 FY20
Cement
• To support local demand, FED
2701.1200 Bituminous Coal 3% 3% 2% 2% - - 17% 17% 11% 11% on local cement reduced from
PKR 100/bag to PKR 75/bag
2701.1900 Other Coal 3% 3% 2% 2% - - 17% 17% 11% 11% during the period.

PKR PKR
2523.1000 Cement Clinker 11% 11% 2% 2% 17% 17% 11% 11%
150/Ton 150/Ton

Finished Goods FY20 FY19 FY19 FY20 FY19 FY20 FY19 FY20 FY19 FY20

Building Block and

6810.1100 20% 20% 7% 7% - - 17% 17% 11% 11%
Bricks

PKR PKR
2523.2100 White Cement 20% 20% 7% 7% 17% 17% 11% 11%
150/Ton 150/Ton

PKR PKR
2523.2900 Other Cement 20% 20% 7% 7% 17% 17% 11% 11%
150/Ton 150/Ton

Source: PACRA Internal Database 17

Cement
Porters 5 Forces Model

POTENTIAL NEW ENTRY BUYERS SUPPLIERS COMPETITIVE RIVALRY

SUBSTITUTES
• No/Low threat of
substitutes
• Indispensable
component of
construction
• Low power • High
• Low threat to Entry • Medium to high • Abundance supply of • Capacity
• High Capital cost of • Abundance supply basic raw material enhancement amid
plant development • Homogeneous • Heavy rely on imported stagnant demand
• Extensive regulatory nature of the coal comes with its set of increases
requirement to product challenges competition
establish new plants
• Strong dealer
network of
established players

18
Cement
SWOT Analysis
• Abundance local availability of basic raw material • Reliance on depleting natural resources
• Low cost skilled and unskilled labor • Heavy reliance on imported coal
• Capital intensive sector • Exposure to exchange rate volatility
• Characterized by good margins in period of robust • Extensive regulatory requirements
demand • Supply-Demand gap
• Demand Potential • Inability to pass on increased cost of production
• Strong dealership and distribution network to end consumers
• Non-availability of substitute Strengths Weaknesses

• Low per capita consumption

• High level of competition
• Government initiatives to spur construction
• Increasing cost of energy
activities and establish a large number of low
• Reducing PSDP spending in a wake of
Threats Opportunities cost houses.
increasing fiscal deficit
• Uptick in construction activities
• Rising environmental concerns related to
• Pakistan GDP recovery and reduced finance
production of cement
costs leading to opportunities for investment
• Competition in export markets with cheaper
• Improving infrastructure under CPEC related
Iranian cement
projects
• Third wave of covid-19 lockdown and
possible lock down

19
Cement
OMC | Global Market
Outlook: Stable
• Post covid-19 lockdown, the cement dispatches has shown significant growth. Total dispatches are expected to register more than
~20% YOY growth during FY21 on account of low base effect and increase in construction activity.

• During FY21, the government has announced construction package along with other regulatory relaxations to support spur
construction activity. These measure are yielding positive results as the sector has shown positive growth since then.

• Recently, many cement players has announced capacity expansion, the production capacity of the sector is expected to cross ~80
MMT in 2023. Amid low PSDP spending growth in local consumption from private consumers would be crucial for the sector.

• The sectors profitability is highly sensitive to change retention prices, low capacity utilization usually increase competition amongst
local players and hence reduce the retention prices.

• The sector has been benefitted from low interest rate and low coal prices during 1HFY21. Interest rate are expected to increase in
coming periods and average coal prices are also expected to increase in 2HFY21 as compare to 1HFY21. Both these changes will have
a negative impact on sector’s profitability.

• The growth in export of clinker to Bangladesh is expected to remain robust owing to growing economy of the country and non-
availability of indigenous raw material locally. Whereas, the export of cement to Afghanistan is expected to remain under pressure
owing to influx of cheaper Iranian cement.

20
Cement
Bibliography
• National Fertilizer Development Centre (NFDC) Research Saniya Tauseef Muhammad Nadeem Sheikh
Team Asst. Manager Supervising Senior
[email protected] [email protected]

Contact Number: +92 42 35869504

DISCLAIMER
PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its
accuracy or completeness is not guaranteed. The information in this document may be copied or otherwise reproduced, in whole or in part,
provided the source is duly acknowledged. The presentation should not be relied upon as professional advice.

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