Introduction

Rapid urbanization and the property and infrastructure sector

boom caused increasing demand for cement in Bangladesh.

The development of cement industry in Bangladesh dates back

to the early-fifties but its growth in real sense started only about decade or so. Government gave permission for establishing cement industries in Bangladesh in financial year 1995. Bangladesh cement industry is the 40th largest market in the world. Current capacity of the industry is about 22 mn tonnes (MT).And this sector is considered as one of the emerging sector in the economy of Bangladesh.

Recent Cement Industry Overview

Currently 123 companies are listed as cement

manufacturers in the country. 63 have actual production capacity while about 30 do not have any production at all. The current installed capacity is 22.0 MMT. However, because of supply constraints for power and clinkers, the actual capacity is about 17.0 MMT

Recent Overview of Cement Industry

Total Production capacity (mn MT)

22
70% 13.96 13.93 84.5 Kg 123 63 32

Industry average utilization rate

Actual capacity excluding obstacles (mn MT) Local consumption (mn MT) Per capita consumption Total factories registered Factories started operation Currently plants in operation

Recent Overview of Cement Industry

Factories exporting cement to India Size of export in FY2011 (K MT/year) Construction % of GDP Construction sector growth in FY2010 (according to BBS) Industry consumption growth in FY2011 Expected industry growth rate in next 5 years

8 260 10% 8%

32%
25% / year

Largest 13 cement companies hold (market share)

78%

Industry Structure
Local manufacturers Multinationals

27%

73%

Market for Cement Industry

Cement Consumer

29%

3% 8%

60%

Individual homebuilders Real estate developers Construction contractors Government

Industry Demand & Production scenario

Installed capacity of the consumption and the

industry is 22.0 mn MT. This installed capacity has been calculated under two conditions 1. All factories are in operation 2. Production is at its peak season
currently the actual capacity

production of the cement in FY 2007 to FY 2011.

25
20 15 10 5 0 2007 2008 2009 2010 2011
Consumpti on (mn MT) Capacity (mn MT)

is about 17 mn MT due to supply constraints for power and clinkers.

Industry Characteristics
I. Seasonality and Cyclicality of
the Industry Area Wise Consumption FY 2011 Peak Season January to April/ May and October to December 2% Dull/off Season (depends on 7% Dhaka monsoon) 12% Mongla June to September Chattagong 16% 64% II. Regional in Nature Sylhet Cement is a high-volume, lowRajshahi value commodity. Transporting over long distances adds to the cost,. This makes cement a regional commodity where lower distribution cost makes it remunerative to producers

Industry Characteristics
Some other characteristics :

Supply At present, the demand-supply situation is tightly balanced with the latter being marginally higher.

Demand However, recently industrial and infrastructure sectors have also emerged as demand drivers. Barriers to entry High capital costs and long gestation periods. Access to cheap source of clinker supplier also acts as a significant entry barrier.

Bargaining power of suppliers Our cement industry depends on imported raw materials. Currently international price of clinker is stable. But any kind of volatility in its price remained a concern. Bargaining power of customers End users of the product get benefited if they are near to the distribution plant of the company.

Competition Intense competition among players regarding price due to homogeneous product.

Cost and Pricing Structure

i. Cost Elements
Cost elements Power costs Raw costs Transportation costs Other expenses 10% Major Clinker Exporters of Thailand, Malaysia, Indonesia, China, 5% Additives Gypsum and Fly ash material 75% Key raw material and % of cost of sales fuel 10%

Raw material costs

Main raw material of production is clinker which accounts 70-75% of the COGS
Raw material Clinker

Power and fuel costs

Cement industry is power-intensive with power and fuel costs constituting approximately 7%-10% of the cost of sale of cement

Philippines and India

ii. Pricing Structure

the standard price of one bag of cement produced by the cement

companies ranges within BDT 450 to BDT 480 per bag. On the other hand, price of one bag of cement produced by the local companies ranges within the price bracket of BDT 430 to BDT 472.
Hence, average price of cement is expected to increase by BDT 5.0 -

BDT 10.0 per bag over the next 3 years. Price may not increase in line with increasing demand as the cost of sales may dip due to stable clinker price and increasing supply of product

Product and Technology

Product:

Bangladesh has adopted EN197- 1:2000 as Bangladesh Standard, titled BDS EN 197-1:2003. Under this Standard there are 27 products in the family of common cements, which are grouped into five main cement types as follows:
1. 2. 3. 4. 5.

Portland cement Portland- composite cement Blast furnace cement Pozzolanic cement Composite cement

 Technology

Two basic types of clinker production processes exist Wet method (use in Bangladesh) Dry method The finished product is analyzed and tested to ensure that it complies with all specifications
Standardization-Bangladesh is maintaining
Standardization BSTI (Bangladesh Standardization Authority) has been
adopted the European Norms and titled as BDS EN 197-1:2003 Main constituents a) Clinker b) Slag c) Fly ash d) limestone e) Gypsum

SWOT Analysis of Cement Industry Bangladesh:

Strength:
High selling price of the product and profitability levels Taxes and restrictions set on imported cement

Natural hedge from outside competition arising from high

transportation costs Capital-intensive industry with long construction periods, creating natural barrier to new entrants Government incentive to domestic cement manufacturers. There is no Substitute for Cement. Steel can be used in construction but in limited extent due to its high cost.

Weaknesses:

High price of fuel and power shortage problem. Significantly increasing production and transportation costs. Increasing raw material cost. Most of the raw materials are imported so the supplier of raw materials enjoys high bargaining power

Opportunities:
Construction boom in both domestic and international markets

countries that is expected to continue in the short to medium term Possible entry of multinational companies, increasing efficiency and opening new export routes. Private sector may get interested to invest in real estate for getting tax advantages of their undeclared funds Lower bargaining power of the end users

Threats:

Several capacity upgrades are planned, raising the

possibility of oversupply situation. Increased competition in local markets. Fragmented regional industry with no economies of scale. Environmental threat. Unstable political situation. Price Hike/ Maintaining Substantial Price.

For the financial analysis of the study we have selected 5 companies which are Public listed companies that are belonging to Cement Industry of Bangladesh:
Heidelberg Cement Bangladesh Limited Confidence Cement Limited Meghna Cement Limited Aramit Cement Limited Lafarge Surma Cemnet Limited

Conclusion And Recommendation

Recommendation:
Government should provide more incentives and tax benefits to

this sector.

Power problem and fuel problem should be minimized in order

to generate higher production.

Opportunities to go international should be analyzed and

utilized by domestic cement producers.

If the import duty structure of various cement products, e.g.

finished cement, semi-finished cement and basic raw materials for cement (25%, 12% and 7% respectively) should be maintained which will foster the growth of domestic producers.