Gomal University D.I.

KHAN

Cement Industry of Pakistan

& its Economic Impact

Submitted By:

Romana Nargus

Project

MBA (Banking & Finance) Exam Roll No.: 462 Class Roll No: 01- A Session: 2009-2011

Submitted To:

Dr. Sher Kamal

Dept: of Business Administration, Gomal University, DIK

Date: 11 November 2011

IN THE NAME OF

ALLAH
THE MOST GRACIOUS & THE MOST MERCIFUL

TABLE OF CONTENTS
3

Figure 1: market share of cement in Pakistan..........................................................18 Figure 2: Plant sites of Lucky Cement...................26 Figure 3....................................................................................................................34

CHAPTER NO: 1

HISTORICA L BACKGROUND
AT THE TIME OF INDEPENENCE
The development of cement sector has made rapid strides, both in public and private sectors during last two decades. The history of cement industry in Pakistan dates back to 1921 when the first plant was established at Wah 3

Pakistan has come a long way since independence in 1947 when the country had inherited four cement plants having total installed capacity of 0.5 million tons, all of which were controlled from India. These units were located at Karachi, Rohri, Dandot and Wah. During the decade of 1948-58, the number of cement units increased to six.

AYUB KHANS ERA During the Ayub era the economy started to grow and the construction activities underwent a boom. In 1956 Pakistan Industrial Development Corporation (PIDC) established two plants at Daudkel and Hyderabad and subsequently more plants were established in the private sector. However these expansions that took place in 195666 could not keep pace with the economic development and the country had to resort to imports of cement in 1976-77 and continued to do so till 1994-95. Pakistan is fortunately rich in the deposits of limestone, clay and gypsum, which constitute basic raw materials for manufacturing of cement. In spite of having abundant raw materials and rising growth in demand of cement, only five cement factories were established during the initial thirty years of independence, with aggregate capacity of 3.2 million tones. Among these units one was established in Hyderabad (Sind) in the public sector. It was called Zeal Pak and was set up in 1956. Another unit in the public sector was known as Maple Leaf which was established in the province of Punjab in the same year. Three units were set up during 1965-66 in the private sector. These were Javedan in Sind, Gharibwal and Mustehkam in the province of Punjab. NATIONALIZATION IN BHUTTOS ERA After nationalization of industries in early seventies, cement industry remained under the control of government till late seventies. During this period, growth in demand of cement was around 7 per cent per annum, whereas new capacities were not coming up to match with the demand. Consequently, Pakistan had to import cement for a long period, which reached to a level of 1.3 million tones in the year 1981-82. Import of cement continued from 1971 to 1985. Its scarcity also hampered the development process in the country. During the period of Zulfiqar Ali Bhutto all the industrial units, including cement industry, were nationalized, therefore, no new unit was set up during 1971-77. The industry was nationalized in 1972 and the State Cement Corporation of Pakistan 3

(SCCP) was established following the Economic Reforms Order, 1972, and was given the responsibility to manage the production of cement in the country. As a result of nationalization, a total of 10 cement units with an installed capacity of 2.8 million tones per annum were transferred to the SCCP. Effective price control was also vested with the SCCP and for a long time the industry operated under a regime of strict regulation and price control. While the cement industry was working under state control, the SCCP established five new units with an installed capacity of 1.8 million tones per annum. DE-NATIONALIZATION IN ZIA-UL-HAQS ERA During the period of General Zia-ul-Haq, 1977-88, denationalization of industrial units boosted the investments. Housing and construction industries picked up and the demand for cement increased. Thus, the number of cement units increased from 9 to 23 and finally 24. After the change in government in 1977, private sector was allowed to establish cement plants. As a result, seven projects having a capacity of 2.54 million tons were installed in private sector and simultaneously, State Cement Corporation of Pakistan also put four projects having a capacity of 1.6 million tons, enhancing the total capacity of the country to over 8.5 million tons by the end of 1990. PRIVATIZATION IN NAWAZ SHARIFFS ERA During the regime of Nawaz Sharif the industry went through major transformation. The industry was privatized in 1990 which led to setting up of new plants. The government embarked upon an ambitious privatization programme and eight units were privatized. The units working under the SCCP control are old and inefficient using 'wet process' whereas the units established in the private sector are new, efficient and use 'dry process'. With the privatization of cement units after 1990, The SCCP lost its control over the supply of cement and controlled less than 25% of the total installed capacity in the country which was shrinking with the establishment of more plants in the private sector and expansion in the privatized units. At that time there was an acute shortage of cement in the Northern areas of the country. In the first half of nineties, Pakistan had to import cement which led to the increase in cement prices exorbitantly making cement companies to earn very high profits. This tempted some of the existing units like Cherat, Pakland, Dadabhoy, Ac Wah, D.G. Khan, Maple Leaf and Kohat to go for expansion in their plants. Simultaneously, 5 more new projects with aggregated capacity of 5 million tons came on the stream. As such, production capacity went up to 16 million tons by the end of 2000. The five new units in the private sector were Pioneer (Punjab) 1994, Lucky (NWFP) 1996, Askari (NWFP) 1997, Fauji (Punjab) 1997 and Best Way (NWFP) 1998. Privatization and effective price decontrol in 1991-92 heralded a new era in which the industry has reached a level where surplus production after meeting local demand is expected in 1997. GENERAL MUSHARRAFS ERA In the year 1999-2000 the cement industry survived from its earlier crisis of excess production and low demand and resultant under cutting and unhealthy competition. 3

It came out of red because of joint strategy to tailor production to the market requirements. This helped the industry to achieve a price level which not only covered the cost of production but also left some margin of profit to the manufacturers. This agreed sale price was also accepted by the consumers.

Y ears
6 4 2 0 1947 1960 1970 1980 1990 2000 2001 2007 2010

Chart 1: Growth in no. of units The industry is again on the war-path against its own members. The dispute arose in Sept. 2000 when the government levied sales tax on the cement industry. Immediately after, however, the government allowed 4 cement units established in the NWFP and Baluchistan extension from payment of sales tax till June 2001.

The remaining 19 cement plants operating in Punjab and Sind who were bound to pay sale tax amounting to about Rs. 20 per bag, could not compete with the four privileged one. These four units Best Way, AWT Cement, Lucky Cement were allowed sales tax exemption under an SR0 issued between 1992 and 96 allowing tax exemption to all industrial units set up in NWFP & Baluchistan. The present government allowed this exemption to only cement industries located in these areas till June 2001.

HISTORICAL DEVELOPMENT OF CEMENT INDUSTRY

1947(Bad era): the country. 1948-58: increased to six 1958-68(Boom era/Ayub era): increased from 6-9 1971-77(Nationalization/Bhutto era): units were setup 1977-78(Denationalization): from 9 to 23 90s(Dark era /Cement sector had to bear massive losses): 3 Cement units increased No new The cement units The number of cement units Only four units were producing grey cement in

24 units Current scenario: players are operating 29

CHRONOLOGY

YEARS 1921 1947 1948-58 1956 1956 1961 1965-66 1976-85 1972 1972 1981-82 1977-88 1977 1981 1990 1992 1992-96 1994-95 1996 1999-00 2000 2000 2005-06 2006-07 2006-07 2007 2008

EVENTS The first cement plant established at Wah. Pakistan inherited four cement plants having total installed capacity of 0.5 million tons The number of cement units increased to six PIDC established two plants at Daudkel and Hyderabad Zeal Pak and Maple Leaf were established Javedan Cement factory was installed as vallika cement Javedan , Gharibwal and Mustehkam cement were set up in the private sector Started importing cement * Industry was nationalized and no new units were set up State Cement Corporation of Pakistan (SCCP) was Established Imports reached 1.3 million tons Denationalization of industrial units boosted the investments. Number of cement units increased from 9 to 24 Attock Cement factory was established industry was privatized and eight units were privatized Production increased by 96% to 7.2 million tons than the previous years tax exemption to all industrial units set up in NWFP & Balochistan till June 2001 Pakistan continued to import till 1995 to meet the acute shortage of cement in the northern areas, which led to increase in prices Production increased by 21% approx than the previous year crisis of excess production and low demand production capacity went up to 16 million tons government levied sales tax on the cement industry two new units were installed The installed capacity increased by 44% to 35 million tons from 24.3 million tons Exports increased by 41.5% to 2.13 million ton from 1.505 million tons Cement sales registered a growth of 31% to 17.53 million tons versus 13.25 million tons in 2006 Highest ever dispatches in the history of Cement industry of Pakistan with the growth if 25% same time last year from 1,823,496 to 2,821,216 metric tons Custom duty over import of coal exempted. Import duty over pet coke reduced to 5% Excise duty increased from Rs. 750 to Rs. 900 in April which later was decreased to Rs 700 per ton in July. General sales tax increased from 15% to 16% Pakistan is ranked fifth in worlds cement export 3

2008 2008 2009 2009 2009

CHAPTER NO: 2

INTRODUCTION TO THE INDUSTORY

3

TYPES OF CEMENT PRODUCED WORLDWIDE Cements that are used for construction are divided into two main categories based on cement properties, hydraulic or non-hydraulic. Although only certain types of cement are commonly utilized today, there are several different types of cement that can be created. Various types of cement are possible by blending different proportions of gypsum, clinker, and other additives together. Non-Hydraulic Cement Non-hydraulic cement is cement which cannot harden while in contact with water, as compared to hydraulic cement which can. When non-hydraulic cement is utilized in construction, it must be kept dry so that it will hold the structure. Due to the difficulties related with waiting long periods for drying, non-hydraulic cement is rarely used in current market. Hydraulic Cement Hydraulic cements are cements that have the ability to set and harden after being combined with water. Hydraulic cement is made mainly from limestone, certain clay minerals, and gypsum, which are burned together in a high temperature. Hydraulic cement is the main cement utilized in modern day construction. TYPES OF CEMENT AVAILABLE IN INTERNATIONAL MARKET 1. Portland cement 2. Portland cement blend 3. Portland Blast furnace Cement 4. Portland Fly ash Cement 5. Portland Pozzolan Cement 6. Portland Silica Fume cement 7. Masonry Cement 8. Expansive Cement 9. White blended cement 10.Colored cement 11.Very finely ground cement 12.Pozzolan-lime cement 13.Slag-lime cement 14.Super sulfated cements 15.Calcium aluminate cements 16.Calcium sulfoaluminate cements 17.Natural Cements 18.Geopolymer cements 19.Sulphate resistance cement TYPES OF CEMENT PRODUCED IN PAKISTAN Cement industry is indeed a highly important segment of industrial sector that plays a vital role in the socio-economic development. Since cement is a specialized product, requiring sophisticated infrastructure and production location. Mostly of the cement companies in Pakistan are located near mountainous regions that are rich in clay, iron and mineral capacity. Cement industries in Pakistan are currently operating at their maximum capacity due to the boom in commercial and industrial construction within Pakistan. Although a large number of cement varieties are 3

produced in different countries of the world, Pakistan has been producing following types of cement. 1. Ordinary Portland cement 2. Portland Blast Furnace Slag Cement 3. Sulphate Resisting Cement 4. White Cement Portland cement It is the most popular type of cement, formerly known as Ordinary Portland Cement (OPC), CEM I. It is the cement that has been most commonly used throughout the world in building works. OPC 1. Portland blast furnace slag cement The Slag Cement of the Portland Blast Furnace is a type of cement that is hydraulic and is manufactured in a blast furnace. The manufacture of Portland Blast Furnace Slag Cement requires 75% less energy than that for the production of the Portland cement. The low cost of production of Portland Blast Furnace Slag Cement makes it cheaper than Portland cement. It is for this reason that in recent years, the sales of Portland Blast Furnace Slag Cement have increased. Slag Cement Sulphate Resistance SRPC is a special type of CEM I cement. However, it is not the only sulphate-resisting cement available; various factory-made composite cements are also sulphate-resisting. SRC is specially used in sea and coastal areas as it offers greater resistance to chemical attack from sulphate and dissolved salts and alkalies present in sea and saline waters. SRPC White Cement White Portland cement is a unique kind of Portland cement. It is different from ordinary Portland cement. It is of white color, instead of a dull grey one. White cement is frequently chosen by architects for use in white, off-white or coloured concretes that will be exposed, inside or outside buildings, to the public's gaze. White Cement

LIST OF CEMENT MANUFACTURED IN PAKISTAN AND GLOBALLY The table below describes the types of cement manufactured in Pakistan and Worldwide: Cement 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Portland cement Portland cement blends Portland Blast furnace Cement Portland Fly ash Cement Portland Pozzolan Cement Portland Silica Fume cement Masonry Cement Expansive Cement White blended cement Colored cement Very finely ground cement Rapid Hardening Portland Cements Pozzolan-lime cement Slag-lime cement Super sulfated cements. Calcium aluminate cements Calcium sulfoaluminate cements "Natural" Cements Geopolymer cements Sulphate resistance cement Manufactured in Pakistan Manufactured Globally

LIST OF CEMENT COMPANIES SITUATED IN PAKISTAN

The industry comprises of 29 firms (19 units in the north and 10 units in the south), with the production capacity of 44.09 million tons. The norths with production capacity of 35.18 million tons (80 percent) while the south with production capacity 3

of 8.89 million tons (20 percent), compete for the domestic market of over 19 million tons. There are four foreign companies, three armed forces companies and 16 private companies listed in the stock exchanges. The industry is divided into two broad regions, the northern region and the southern region. The table below shows the companys included in the Cement Industry of Pakistan: Northern Zone S. no 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Company Askari Cement Ltd Bestway Cement-I Cherat Cement* Dandot Cement Limited* Dewan Cement Limited* D.G. Khan Cement (KK)* D.G. Khan Cement-II * Fauji Cement Company* Flying Cement Limited* Fecto Cement* Gharibwal Cement Ltd* Kohat Cement Company Limited* Lucky Cement (Karachi)* Maple Leaf Cement Mustehkam Cement* Pakistan Cement Pioneer Cement* Bestway Cement Chakwal-II Askari Cement Ltd. (Nazimpur) Southern Zone S. no 20 21 22 23 24 25 26 27 28 29 20 Company A.C. Rohri Cement Limited Al-Abbas Cement Limited* Attock Cement* Dadabhoy Cement Limited* Javedan Cement Limited* Pakistan Slag Cement Limited Thatta Cement Limited* Zeal Pak Cement Limited Lucky Cement (pezu)* Bestway Cement (Chakwal) A.C. Rohri Cement Limited

Askari Cement Askari cement has two plants, one in Wah and the other in Nizampur which has been installed by Army Welfare Trust. The main product is ordinary Portland cement which is supplied in polypropylene as well as in paper bags of 50kg each. Total Capacity of both lines is 4000 tonnes per day. D.G. Khan Cement D.G. Khan Cement Company Limited (DGKCC) is one of the largest cement-manufacturing units in Pakistan with a production capacity of 5,500 tons clinker per day. It has a countrywide distribution network. Its main products are ordinary Portland cement and sulphate resistance cement. Lucky Cement Lucky Cement has been successful in establishing its brand in several export markets including Middle East, India, Sri Lanka and East and South African countries. It has a daily production capacity of 4,200 tons per day. Its main products are Ordinary Portland cement (OPC), Sulphate resistant cement and Slag cement. Maple Leaf Cement Maple Leaf produces Ordinary Portland Cement (OPC), white cement and sulphate resistance cement. It is the largest producer of White Cement in the country with the market share of 80% in the production of White Cement. Pioneer Cement The Company's factory is located at Khushab. Its major products are Ordinary Portland Cement Sulphate Resistant Cement

Attock Cement Main business of the Company is Manufacturing and sales of cement. Its main products are ordinary Portland cement, sulphate resistance cement and Portland blast furnace slag cement.

Kohat Cement Company Limited It is engaged in manufacturing of Grey (OPC) and White Cements. The plant is located in Kohat about 60 kilometers from Peshawar.

Fauji Cement Company The Headquarter of Fauji Cement Company is located in Islamabad; it operates a cement plant at District Attock in the province of Punjab. Its main product is ordinary Portland cement

Chart 2: Production of cement in Pakistan in last 4 years

MARKET SHARE OF THE FIRMS IN CEMENT INDUSTRY

The market share of the cement companys in Pakistan is as follows:

Figure 1: market share of cement in Pakistan

GEOGRAPHICAL LOCATION OF CEMENT INDUSTRY

LOCATION
Karachi Islamabad Hyderabad Sukkar Chakwal Lasbela Lahore Kohat Dadu

NO.OF COMPANIES
3 2 1 1 4 1 1 1 2

LOCATION
khushab Pezu Attock D.G.Khan Haripur Nowshera Wah Thatta Total

NO.OF COMPANIES
2 1 1 1 4 2 1 1 29

Chart: Geographical locations of firms in cement industry

TOTAL PRODUCTION IN PAKISTAN CEMENT INDUSTRY

Year
1991 (June) 1992 (June) 1993 (June) 1994 (June) 1995 (June) 1996 (June) 1997 (June) 1998 (June) 1999 (June) 2000 (June) 2001 (June) 2002 (June) 2003 (June) 2004 (June) 2005 (June) 2006 (June) 2007 (June) 2008(June) 2009 (June) 2010 (June)

Cement Production (million tons)

7.649 8.115 8.348 8.158 8.159 9.458 9.539 9.29 9.546 9.969 9.876 9.988 11.41 13.344 17.112 19.512 36.841 35.01 44.09 50.08

After 2002-3, most of the cement manufacturers expanded their operations, and increased production. This sector has invested about $1.5 billion in capacity expansion over the last six years. The operating capacity of cement in 1991 was 8 million tons, which increased to become 18 million tons by 2005-06 and by end of 2010 rose to above 37 million tones. Recently, the industry comprises of 29 firms with the production capacity of 44.09 million tons. The north has production capacity of 35.18 million tons while the south has production capacity of 8.89 million tons. The northern region contributes 80% to the annual cement sales while the unit based in the southern region contributes 20% to the annual cement sales.

TOTAL EMPLOYMENT

The company in cement sector takes their people as one of the most valuable assets, they view their human resource as the competitive advantage therefore they ensure that they employ only those people who are self-motivated and professionally qualified. They also take into consideration that their business goal are realized through such diverse work force providing equal opportunities without any discrimination on the basis of cast, creed, gender and religion. Cement industry is also serving the nation by providing job opportunities and presently more than 150,000 persons are employed directly or indirectly by the industry.

Chart 3: popular destinations for export in cement industry

We are leading exporter of Ordinary Portland Cement, Sulphate Resistant Cement (SRC) and Slag Cement from Pakistan. Our popular export destinations are India, South Asia, Gulf region, Afghanistan, South Africa and many African countries. EXPORT DISPATCHES
2009-2010 Months |----------Cement----------| Afghanistan July Aug Sept Oct Nov Total 221,028 265,620 257,354 192,774 257,598 1,194,374 11,316 37,557 47,363 96,236 India Other (Sea) 194,739 260,488 226,158 194,711 176,738 1,052,834 25,330 49,402 53,804 35,455 84,955 248,946 Clinker

Table 1: cement exports in 2007-08

2008-2009 Mon |----------Cement----------| Afghanistan July Aug Sep 268,334 262,968 219,202 India 54,300 59,498 75,221 Other (Sea) 384,210 370,840 457,307 Clinker (Sea) 106,159 93,888 145,198 813,002 787,194 896,928 Total

Oct Nov Total Growth-%

238,336 275,410 1,264,250 5.85%

37,567 67,534 294,12 0 205.62 %

509,469 506,555 2,228,381 111.66%

214,894 115,387 675,525 171.35%

1,000,266 964,886 4,462,275 72.13%

Table 2: cement exports in 2009-10

TOTAL IMPORTS
IMPORTS & EXPORTS ANALYSIS Cement Imports Nil Cement Exports The export may reach to $ 500 million increase during 2008. Because Afghanistan is Pakistans largest cement export market.
Table 3: imports & exports analysis

NEW PLANTS OPENED IN CEMENT INDUSTRY PAKISTAN

In FY08, Pakistan cement industry brought in 5.84 million tons of new capacity of cement production taking the total cement capacity to 36.1 million tons. This includes:

Table 4: NEW PLANTS OPENED IN CEMENT INDUSTRY PAKISTAN

D.G.Khans new khairpur plant Maple leafs new productions line of 2.1 million tons each and some other additions of 1.8 million tons. Lucky cement with its two new lines of 1.26 million tons capacity of each. Fuji cement with its 2.1 million tons new line is expected to come online. The Chakwal Group, which acquired management control of Dandot Cement, is setting up another cement plant, Chakwal Cement

PLANTS CLOSED IN CEMENT INDUSTRY PAKISTAN

The cement industry was not performing well in 90s and mid 90s. they had to bear huge losses because of overall low economic activity causes low demand of cement 3

both from private and public sector. Costly furnance oil, increase in electricity price and imported craft paper was the main reason of poor cashflow of the cement sector. Due to massive losses number of units closed down because of their poor cashflow.

CHAPTER NO: 3

PROFILE & MAJOR PLAYER

PROFILE AND MAJOR PALYER There are three major players in the Cement industry of Pakistan Lucky Cement, D.G. Khan Cement and best way cement. According to the market share of 2010 lucky Cement occupy 18%, D.G. Khan 13% and Best way Cement 12% LUCKY CEMENT
YEAR OF FORMATION

Lucky Cement Limited is a Pakistan- based company engaged in manufacturing and marketing of cement. It first factory was established in 1996 in Pezu, district of North West Frontier Province (N.W.F.P). According to Wikipedia, it is the largest cement producer in Pakistan and is the only company with presence in both zones (north and south) LOCATION OF HEAD OFFICE AND PRINCIPAL OFFICES Karachi (Head office) Islamabad (Marketing Head Office) Lahore Quetta Peshawar Multan

PRODUCTS OFFERED The Company offers three types of cement: 1. Ordinary Portland cement 2. Sulphate resistant cement 3. Slag cement. These products are offered under various brand names, including Lucky Cement (Regular), Lucky Star, Lucky Gold and Lucky Sulphate Resistant Cement (SRC). Ordinary Portland cement is available in darker shade, as well as in light shades with different brand names. Slag cement is also available for specific user requirements. LOCATION OF MAJOR FACTORIES There are two factories of lucky cement Plant 1: Pezu, District Lakki Marwat in North West Frontier Province (NWFP),

Plant 2: Main Highway in Karachi Sindh.

Figure 2: Plant sites of Lucky Cement IMPACT ON INDUSTRY The strength of lucky cement is its largest capacity and better coverage because of its two plants. Lucky Cement Limited is the largest manufacturer and exporter of cement in Pakistan. The company has the highest export market share of 30% Jul08 Jun 09 Jul07 - Jun08

Export and local sales of Lucky Cement

Lucky cement exports 2010 Year wise dispatches

D.G.KHAN CEMENT
YEAR OF FORMATION

DGKCC was established under the State Cement Corporation of Pakistan Limited (SCCP) in 1978. DGKCC started its commercial production in April 1986 with 2000 tons per day, clinker based on dry process technology. Plant & Machinery was supplied by Industries of Japan. Nishat Group acquired DGKCC in 1992 under the privatization initiative of the government.
LOCATION OF HEAD OFFICE AND PRINCIPAL OFFICES

Lawrence road, Lahore (Head office) D.G.Khan (Regional Office) Karachi Rawalpindi Multan PRODUCTS OFFERED The Company's main activities are to manufacture and distribute: Ordinary Portland

Sulphate resistant cement. These products are marketed through two different brands, DG brand & Elephant brand Ordinary Portland Cement and DG brand Sulphate Resistant Cement. 3

LOCATION OF MAJOR FACTORIES There are two factories of D.G.Khan Cement Company FACTORY 1: khofli sattai, Distt. Dera ghazi khan FACTORY 2: choa saidan shah road, khairpur, tehsil kallar kahar, distt. Chakwal

IMPACT ON INDUSTRY D.G.Khan has a high impact over cement industry as it has maximum market at southern Punjab and northern Sind. It is the second largest manufacturing Company of cement in Pakistan. D.G.Khan cement holds second position in cement industry after lucky cement; this is because the company has second largest installed capacity in the industry. Its the first one to explore exports to the Indian market through sea.

BEST WAY CEMENT

YEAR OF FORMATION

Bestway Cement Limited is part of the Bestway Group of the United Kingdom. In response to successive governments efforts to attract foreign investment in the country Bestway Group has invested heavily in Pakistan. In 1994 Bestway Group started work on the cement plant in the under developed area of Hattar, Haripur in the North West Frontier Province, Pakistan. Its initial investment was of US$120 million.
LOCATION OF HEAD OFFICE AND PRINCIPAL OFFICES

Islamabad (Head office) Rawalpindi (Marketing Head Office) Lahore Peshawar

PRODUCTS OFFERED The Company's principal activity is to produce and sell cement in Pakistan. Its main products are Ordinary Portland cement Sulphate Resistant Cement. LOCATION OF MAJOR FACTORIES Factory 1: Bestway Cement Hattar, Haripur Factory 2: Chakwal unit 1&2, village Tatral Factory 3: Mustehkam Cement, Haripur 3

IMPACT ON INDUSTRY Bestway Company has a positive impact on cement industry as it has latest technologies for its quality assurance and most of its product is exported to Afghanistan. Apart from the usual quality control equipment, Bestways laboratories are equipped with technologies such as X-ray Fluorescent Analyzers and Diffractometers which were introduced in Pakistan for the first time by Bestway.

TRADE UNION OF CEMENT INDUSTRY

YEAR OF FORMATION

APCMA is the collective voice of all the cement manufacturers of Pakistan. It is registered under Trade Organization Ordinance 2007. It was established on 14th of September 1992 under the Companies Ordinance 1984.

LOCATION OF HEAD OFFICE AND PRINCIPAL OFFICES Lahore (Head office) Karachi

KEY RESPONSIBILITIES OF APCMA 1. To create an understanding amongst the private sector cement manufacturers of Pakistan for the following purpose : a. To increase the production of cement b. To improve the quality of cement produced and to increase exports c. To avoid undercutting in the sales price d. To create healthy circumstances for production and sales of cement. 2. To protect, safeguard and promote the interest of its members 3. To help coordination and ensuring co-operation amongst its members to attain primary objectives. 4. To identify and strengthen industrys role in the economic development of the country 5. To help and solve all the problems either faced by the cement manufacturers as a whole or by individual cement manufacturers 6. Provides up-to-date statistical data/information to the industry and other agencies 7. To make representations to the government or other authorities for and on the behalf of cement manufacturers in general and the trade in particular 3

8. To convene when necessary conferences and seminars at such times and such places as may be determined for the promotion of cement industry in Pakistan. 9. Focuses infrastructural problems (Rail, Coal, Power, etc) and suggests suitable measures for their solution. 10.Interacts for Industry's problems with the Government and co-ordinates various activities with other bodies. REGULAR EVENTS OF APCMA Annual elections The elections for the management and President are held every year in which 80% participation of the members is mandatory. Annual General Meeting The General Meeting of the association is held annually at the head office of APCMA in Karachi. The meeting is presided by the Chairman APCMA and upcoming issues , yearly progress, The Announcement of final result of election of members of executive committee and office bearers and Approval of annual audited accounts of APCMA. FAILURE OF APCMA Price war was started in 2007 which was resulted due to market saturation by major cement plant expansion. DGKK was the first player to destabilize the established industry, set prices in order to transfer its excess production capacity On 21st Feb, 2008 the govt. has given one week deadline to APCMA to bring down the unjustified cement prices or face action including ban on export. The government of Pakistan held a detailed inquiry and ordered All-Pakistan Cement Manufacturers Association (APCMA) to increase production and reduce the price of cement to its original level. APCMA Expected the yearly sale to grow by five per cent however total dispatches had increased by an insufficient two per cent in 2009-10. Competition authorities in Pakistan fined about $77 million on 20 cement companies found guilty of operating as a cartel and raising prices under mutual agreement. ACHIEVEMENTS OF APCMA Took measures to bring prices to normal levels on in 2006 Suspend export of cement from the 6th April 2006 to 30th April 2006, which resulted in the availability of additional 200,000 tons of cement in the domestic market

Increased the capacity utilization from 86% to 92 % of total installed capacity, which brought an additional 91,000 tons of cement every month.

Reduction in excise duty by Rs 10 per bag which enabled stability in cement prices this year (2010)

CHAPTER NO: 4

PRODUCTION PROCESS
MATERIALS AND ENERGY The following raw material is required in the production process 1. Lime stone: This raw material is company owned and is extracted from the near by mountains. Limestone has the highest composition in the cement product. 75% to 80% of the cement constitutes of limestone 2. Clay: Clay is another natural resource. This raw material is also company owned. 15% to 20% of cement composition comprises of clay 3. Iron Ore: Iron Ore is the only resource that is bought from contractors. Iron Ore is added in small quantities and it helps to strengthen the cement. 4. Gypsum: Gypsum acts as a retarding agent. It slows down the hardening process which in turn gives the constructor enough time to use it which in turn gives the constructor enough time to use it. Again it is taken from nearest mountains. 5. Fuel: It is used mainly for power generation. Furnace oil is used mainly for power generation. Initially the companies was relying on WAPDA for power supply but now the companies have their own electricity generation plant that provides up to 50% of the total requirements. With the increase of furnace oil prices the companies are expected to move to adopt coal as a more cost efficient and environmentally friendly fuel for kiln firing. Today the management is exploring possibilities of alternative and cheaper fuel such as waste firing etc.

PORTLAND CEMENT Two different processes, "dry" and "wet," are used in the manufacture of Portland cement in Pakistan. Rock is the main raw material in the production of cement and the first step after quarrying in both processes is the primary crushing. Mountains of rock are fed through crushers capable of handling pieces as large as an oil drum. The first crushing reduces the rock to a maximum size of about 6 inches. The rock then goes to secondary crushers or hammer mills for reduction to about 3 inches or smaller. Wet process: In the wet process, the raw materials, properly proportioned, are then ground with water, thoroughly mixed and fed into the kiln in the form of a slurry" (containing enough water to make it fluid). Dry process: In the dry process, raw materials are ground, mixed, and fed to the kiln in a dry state. In other respects, the two processes are essentially alike. The raw material is heated to about 2,700 degrees F in huge cylindrical steel rotary kilns lined with special firebrick. Kilns are frequently as much as 12 feet in diameter large enough to accommodate an automobile and longer in many cases than the height of a 40-story building. Kilns are mounted with the axis inclined slightly from the horizontal. The finely ground raw material or the slurry is fed into the higher end. At the lower end is a roaring blast of flame, produced by precisely controlled burning of powdered coal, oil or gas under forced draft. As the material moves through the kiln, certain elements are driven off in the form of gases. The remaining elements unite to form a new substance with new physical and chemical characteristics. The new substance, called clinker, is formed in pieces about the size of marbles. Clinker is discharged red-hot from the lower end of the kiln and generally is brought down to handling temperature in various types of coolers to lower the clinker to handling temperatures. Cooled clinker is combined with gypsum and ground into a fine gray powder. The clinker is ground so fine that nearly all of it passes through a No. 200 mesh (75 micron) sieve. This fine gray powder is Portland cement.

WHITE PORTLAND CEMENT In addition to the eight types of Portland cement, a number of special purpose hydraulic cements are manufactured. Among these is white Portland cement which is produced in Pakistan. White Portland cement is identical to gray Portland cement except in color. During the manufacturing process, manufacturers select raw materials that contain only negligible amounts of iron and magnesium oxides, the substances that give gray cement its color. White cement is used whenever architectural considerations specify white or colored concrete or mortar.

PRODUCTION PROCESS OF CEMENT (Flow Chart)

Cement involves stages

production the following

Using the any of the following process produces cement Wet Process Semi-dry Process Dry process In the Wet Process, raw material is fed into kiln in slurry form thus energy consumption is high. In the dry process, the ground raw materials are fed into kiln in powder form and energy consumption is comparatively lower to raise the temperature to the required level. Cement plants established in 60s and 70s were based on wet process, whereas the plants established in 80s/90s are based on dry process. CHAPTER NO: 5

PRICING & COSTING

After having a detailed analysis about the regulatory requirements and incentives provided to the industry, it is essential to understand the basic cost structure of a cement industry. It explains the cost classification of a cement industry, determinants of fixed and variable costs and average price range of different types of cement produced in Pakistan. Finally a pricing model has been proposed which might be applied by any cement industry. PRICE LIST OF PRODUCTS IN CEMENT INDUSTRY PAKISTAN In April, 2010 a bag of cement was being sold at Rs 345 on average at retail level, which was decreased to Rs. 270 per bag due to a large stock of cement bags left with the cement manufacturers. APCMA has reduced prices to dispose of its huge stock, which left with them, as the India has recently cancelled an order of over 25,000 tons of cement. Figure 3 While the main reason of this reduction is that there are reports that Government has slashed its development budget by Rs 118 billion which shows that construction work in future will go downward further. The cement prices might further decline due to market circumstances. AVERAGE CEMENT PRICE
In 2006 In 2007 In 2008 In 2009 In 2010 Rs.335 5okg/bag Rs. 430 50kg/bag. Rs. 315 50kg/bag. Rs. 345 50kg/bag. Rs. 385 50 kg/bag

Average cement price (yearly)

PRODUCT LINE
Ordinary Portland Cement White Cement Slag Cement Sulphate resistant Cement

50KG PER BAG (Rs)

270 390 250 385

Selling price of products in cement industry, 2010

PROPOSED PRICING MODEL The pricing model we have formulated has the following cost components: COST OF PRODUCTION (C)

Its total fixed cost and total variable cost for producing cement. (Base price) EXCISE DUTY (ED)

Tax charged on the Cement manufacturers for the cement produced within the country. The federal excise duty is Rs 900 per ton SALES TAX (GST)

Tax based on the cost of the cement purchased and collected directly from the manufacturers. The general sales tax is 16% on the duty-paid price of cement per ton in Pakistan. AVERAGE FREIGHT AND UNLOADING (FR)

Transportation of cement to the end-user, the freight and transport cost up to Rs 500 per ton or Rs 15-25 per 50-kg bag depending upon the distance involved WHOLESALER /DEALERS COMMISSION (C)

Producers sell 50-kg, paper-sack bags of cement to wholesale dealers for cash payment in advance. In this way, manufacturers can recover their working capital investment and, in the process, pass off the title and risk to dealers who bear all costs related to transport, insurance, in-carriage damage, if any, and stock spoilage due to lack of use. Dealers margins range around Rs 175-200 per ton or Rs 4.50-Rs 5.00 per 50 kg bag. Retailer margin is a relatively low Rs 2-3 per 50 kg bag. MANUFACTURERS PROFIT (MP)

The overall demand-supply matrix allows some cement manufacturers earn 10 per cent return on equity, which ensures sufficient profitability for them to continue to manufacture and sell cement. COST OF PRODUCTION {C(x)} C(x) =V.C(x) +F.C(x) Where V.C(x) is the variable cost of cement per ton F.C(x) is the fixed cost for of cement per ton. The model thus formulated is as follows: P(x) = C(x) +ED +GST +FR +C +MP Where, P= Price of Cement per ton C(x) = Cost of production of cement per ton or the base price ED=Excise Duty per ton GST= General sales tax FR= Freight charges per ton C= Wholesaler/dealers commission MP= Manufacturers Profit

CHAPTER NO: 6

KEY ISSUES & THEIR SOULATIONS

KEY ISSUES IN THE ECONOMY THAT IMPACT CEMENT INDUSTRY The Pakistani currency has been depreciating. This has caused a greater problem to the industries who have taken loans in the foreign exchange currencies. According to the federal bureau of statistics, Pakistan hit record inflation during 2008. The SBP, in order to control the inflation, tightened the monetary policies by increasing the interest rates. The increase in the interest rates made the industries pay more interest against the long term loans that they had borrowed at lower interest rates. The investors in the cement sector are well aware of the importance of technology in the present day and they realize the returns they can get using advance technologies. The cement factories such as D.G. cement, lucky cement and may other factories is using latest technologies. However, the old cement industries such as maple leaf are now shifting towards the new technology as well.

Main component of the cost is fuel. Pakistan's cement industry has converted their plants to coal considering it to be the cheapest fuel, but its price in international markets has gone up by more than 300 percent in the last one year, which directly relate increasing the cost of Production.

Certain factors that affect the growth of cement industry are as follows: Slow construction activities in the country badly upsets domestic sale

of cement. Higher GDP growth has positive impact on cement demand. Reconstruction work in result of earthquake boosts construction

material demand Four large Dams (Bhasha Daimer Dam, Munda Dam, Akhori Dam and

Neelum Jhelum) are announced by government. Construction of these dams will generate demand of 3.7 million tons. PROPOSED SOLUTION Federal Excise Duty and GST over Cement industry should be reduced. Its being treated as a luxury item for the purpose of taxes and duties. The local cement industry faces high fuel costs. The government has given incentives in order to facilitate their conversion to coal, which is widely available in the country. High Freight charges should be reduced as its affecting negatively the domestic demand of cement. Government of Pakistan should stress on factors that increase the GDP Government of Pakistan should do its upmost to control the instability in the country. Government of Pakistan should provide infrastructure to the cement industry to setup new factories Government of Pakistan should provide incentives to the cement industry so that they can import new plants. IMPACT OF POLITICAL PARTIES ON THE CEMENT INDUSTRY Low domestic cement demand in the country is due to the political uncertainty. The political stability in Pakistan is at unrest. Due to this, the cement factories are facing problems regarding the investments they have made. 3

The stock market has shown sheer down fall since the political unrest. Although the market share index showed improvement after the resignation of Pervez Musharraf on 18th of August. But still the failure to restore the judges on time and many other issues has made the share index to slope downward once again.

KEY HURDLES IN MARKETING Since cement is a specialized product, requiring sophisticated infrastructure and production location. So, most of the cement industries in Pakistan are located near/within mountainous regions that are rich in clay, iron and mineral capacity. Structure of Cement industry in Pakistan is as such that there is not much substitutability to buyers. Which shows that the Cross elasticity of demand is negligible. Consumers face a tough decision with regards to prefer which brand over which because of the similar pricing of cement industry. Containers are used for transportation purposes and even trains when cement is required urgently from north to south or vice versa. As for exports, ships are launched from ports but the cost of transportation faced by firms is so high that at maximum they can reach till South Africa for exports and the price gets out of budget when the ship reaches USA Not much of innovation is possible in this industry. Intense rivalry can make it difficult for smaller firms to survive. Firms cannot compromise much on the prices. It is hardly possible for any firm to get an edge due to price. PROPOSED SOLUTION Measures should be taken to insure that the customers are not exploited by the cement industry. Cement industry should enter into long term contracts with cement transporters to gain discounts and seek reduced transport prices. Cement industry can enter in to contracts with international logistics transportation companies such as Mersk to export cement to USA in huge volumes at low cost When the big companies are forming an association, small manufactures should be also considered as otherwise they would go out of business.

AVAILABILITY OF FINANCE Cement plant is a highly capital intensive business which requires a lot of investment which only a Giant company or Group can afford. In old times, when cement plants were established, comparatively less investment was required. There were also banks, bankers equity etc that provided loans easily. Now only self financing exists which a bank provides and they sees the feasibility of the project. A new plant should be established after wide market research in an industry where the capacity is already in surplus. This could be possible only if production cost is targeted. The old cement plants were not established keeping in mind the production cost. Nowadays about 70% cost constitutes the energy cost. If a company focuses on lowering the energy cost, making efficient use of technologically advanced machinery then the production cost would apparently be low. There is always a potential for such plants. Types of loans provided to the industry Short term loans: Short term loans are obtained against the current assets of the company. When the company requires a short term loan it sends a request for the loan to the bank. The banks or other financiers put down their facilities in a term sheet against which they can provide the loan to the company. Long term Loans: The long term loans are obtained against the fixed assets of the company. These assets must be insured by the insurance company. This is the basic requirement for the bank. When the company requires a huge amount of loan it contacts to the bank for the loan. The bank than forms a group with other banks in order to arrange the amount. A finance agreement is signed by both the parties and the loan is given under the agreed terms and conditions.

TRADE ISSUES Import policy regarding construction equipment is not reorganized. Trade policy does not facilitate contractors. Regulatory framework discourages international contractors/consultants. Shortage of Electricity or power break down is a major constraint as the frequent restoring to load shedding is causing an adverse effect on the trade and industry. Duties on import of Fuel Strict procedures for registration of contractors by Pakistan Engineering Council (PEC).

Audit should play a positive role.

PROPOSED SOLUTIONS Custom duty over the import of pet coke should be withdrawn as its negatively affects the cement industry. KEY HUMAN RESOURCE ISSUES IN CEMENT INDUSTRY Shortage of qualified and skilled manpower at all levels is an important issue. Another issue is lack of training facilities for the development of required human resources. Human resource policies of clients, contractors and consultants need improvement. Fully skilled and semi skilled workers in search of opportunities have gone to the Middle East and other foreign countries. Some contractors and consultants lack professional management. Inadequate research and development. Limit use of IT in industry.

PROPOSED SOLUTIONS Availability of qualified and skilled manpower should be given priority by government The training facilities should be developed at fast track. Foreign and local experts should be hired to do the research and development. Proper workshops that are held under the supervision of experts so that the practical knowledge is properly imparted to the labor. The cement industry can use reward and bonuses to increase the motivational and performance level of the labor force. Better machinery and management should be used to become cost efficient and become competitive.

Web References
hattp://ww.google.com http://ww.Scribd.com/aikmulaqaat http://ww.shlideshare.net http://www.cement.com.pk/