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PROJECT REPORT ON CEMENT SECTOROFPAKISTAN
SUBMITTED TO:
MR.MAZHAR FARID
SUBMITTED BY:
MUHAMMAD ADEEL(ROLL NO 84)
NEELAM SHEHZADI (ROLL NO 082)
NOUMAN MAJEED(ROLL NO 099)
NASRULLH KHAN (ROLL NO 102)
SUBMISION DATE:
22/MARCH/2017

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BUSINESS ADMINISTRATION DEPARTMENT
ACKNOWLEDGEMENT
First and fore mostly we would like to thank Almighty Allah who blessed us with
knowledge, understanding and ability to do this project.
We have discovered that the work of some unknown persons makes our lives
easier every day. We believe it's appropriate to acknowledge all of these unknown
persons;but it is also necessary to acknowledge those people we know have
directly shaped our lives and our work.
We are honored and privileged to have RespectedMr.MazharFaridas our
subject teacher and our mentor for her guidance throughout the semester.

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TABLE OF CONTENTS
SR NO CONTENTS PAGE NO
1 INTRODUCTION
1.1 HISTORY
1.2 NATIONALIZATION
1.3 PRIVATLIZATION/DEREGULATION
2 MANUAFACTURING
2.1 COMPOSITION OF CEMENT
2.2 TYPES OF CEMENT
2.3 MANUFACTURING PROCESS
2.4 SPECIFICATION
2.5 IMPACT OF PROCESS ON COST
3 TOP 10 CEMENT CO IN PAKISTAN
4 MARKET SEGMENTATION
5 SEGMENTATION OF INSTALLED PRODUCTION CAPACITY
6 DEMAND AND SUPPLY ANALYSIS
7 COST STRUCTURE
8 COST AND PRICE RELATION
9 CHARACTERTICS OF CEMENT INDUSTRY
9.1 MARKET STRUCTURE
9.2 ROLE OF ADVERTISING AND PERMOTION
9.3 DISTRIBUTION FUNCTION

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9.4 NATURE OF INDUTRY
10 SENSITIVITY OF THIS INDUSTRY
10.1 TECNOLOGICAL CHANGE
10.2 CHANGE IN ENERGY PRICES
10.3 DUMPING EFFECT
10.4 EFFECT OF EXCHANGE RATE
11 DEMOGRAPHIC EFFECT
12 PROBLEMS AND ISSUES
13 GOVERNMENT POLICIES
14 PROBLEMS
15 CONCLUSION
16 RECOMMENDATION
REFERENCES
WEBSITES

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Executive Summary
We are the students of BBA studies in The Lahore Garrison University and we have
established the research project on cement sector of Pakistan. The contribution of cement
industry in the economic development can be measured by the value addition of the cement
industry to Gross Domestic Product of the country, creation of employment opportunities,
receipts from exports, tax payments, and the entire revenue generated by the cement industry.
The cement industry of Pakistan is one of the major industries of Pakistan which have an
enormous impact on the economic development of the country. The contribution of cement
industry is very effective not for only the manufacturing sector but also for the entire economic
development of Pakistan. The cement industry of Pakistan was once a very small industry but it
rapidly grew with the passage of time and finally it entered in the export market. The cement
industry contributes in the Gross Domestic Product (GDP), it creates employment opportunities
for thousands of people and it creates huge revenue for the government in the form of taxes. It
directly and indirectly contributes in the economic development of Pakistan. It also makes
contribution in the development of its allies industries especially the transportation sector is
largely benefitted by it. The cement industry of Pakistan attracted not only domestic investors
but also foreign investors. Cement sector of Pakistan create the raise the level of employment
and also raise the level of taxes revenue for Pakistan economy.

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INTRODUCTION
HISTORY
Cement industry is one of the few industries that existed in Pakistan before the partition of the
sub-continent. The major reason for the existence of this industry is the availability of the raw
materials. Pakistan has inexhaustible reserves of limestone and clay, which can support the
industry for another 50-60 years. The annual production of the cement at the time of the creation
of Pakistan was only 300000 tones per year. By 1954 the production increased to 660000 tonnes
per annum against a demand of 1000000 tonnes per annum. At this time PIDC took initiative and
established two cement factories Zealpak (240,000 tonnes) and Maple Leaf (100,000 tonnes)
having a capacity of 340000 tones, thereby increasing the production to 1000000 tonnes per
annum. Since then besides expansion of the existing plants, new plants have also established.
Besides producing OPC, the Pakistani cement industry also started producing SRC, Slag cement
and white cement.
In 1921 the first cement plant was established at WAH. At the time of independence in 1947
there were four cement factories with an installed capacity of 470,000 tonnes per annum. These
units were located at Karachi, Rohri, Dandot and WAH. In 1956 PIDC established two plants at
Daudkel and Hyderabad and subsequently more plants were established in the private sector.
NATIONALIZATION
The industry was nationalized in 1972 and the State Cement Corporation of Pakistan (SCCP)
was established following the Economic Reforms Order, 1972. As a result of nationalization, a
total of 10 cement units with an installed capacity of 2.8 million tonnes 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 the state control, the SCCP established five new units with an
installed capacity of 1.8 million tonnes per annum. For the next fifteen years no new cement
plant was established under the private sector, which resulted in acute shortage of cement in late
70s and early 80s. This gap was filled by the import of cement. Severe shortage of cement and

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price deregulation prompted the private sector to establish more plants. Seven units were
established in the private sector before commencement of the process of privatization in 1991.
PRIVATIZATION/ DEREGULATION
During the regime of Nawaz Sharif the industry went through major transformation. As a part of
its privatization policy, the Government of Pakistan, has privatized 8 cement plants since 1992.
Due to privatization the SCCP lost its control over the prices of the cement and as a result new
cement plants were established under private sector. 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”. At present there are more than 28 cement plants in Pakistan
with installed capacity of over 19.5 million tonnes per annum. The present demand for cement in
Pakistan is around 9.5 million tonnes per annum.
MANUFACTURING PROCESS
COMPOSITION OF CEMENT
Pakistan is a country rich in deposits of limestone, shale and gypsum, which are the main
ingredients for the production of cement. The mining costs for these deposits come to only about
Rs. 100 per tonne or approximately 6% of total manufacturing cost. Thus cement is an extremely
“value-added” product and must be given its due importance. The chemical composition of
cement is as under:
1. CaO 70%
2. SiO2 23%
3. Al2O3 04%
4. FE2O4 03%
Gray cement manufacture consists of about 73% limestone and 25% clay. The amount of
gypsum that is added to the clinker may be taken at 4%. About 1.23 tones of limestone, 0.31
tones of clay and 0.04 tones of gypsum are required for producing one tone of cement. In case of
gas fired kiln about 50000 to 60000 cubic feet of gas is required for a tonne of cement. For the
production of slag cement, blast furnace slag is also used and for the production of sulphate
resistant cement sand and iron ore are also used.
TYPES OF CEMENT
The five types of cement manufactured in Pakistan are

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1. Ordinary Portland Cement (OPC)
2. Slag Cement.
3. Sulphate Resistant Cement (SRC)
4. Super Sulphate Resistant Cement (SSRC)
5. White Cement.
MANUFACTURING PROCESS
The manufacturing process can be of any of the 3 types:
1. Wet Process; an obsolete method of manufacturing due to poor kiln heating and large water
requirements.
2. Semi-Wet Process; not popular due to high levels of fuel and energy consumption and
suited for materials with extreme elasticity. Quite obsolete.
 Dry Process; suitable for materials with low moisture content. Low fuel usage as compared
to the wet process, less maintenance requirements, higher kiln efficiency due to pre- heating
facility and low kiln setup and maintenance costs.
Two main methods of cement manufacturing are prominent, the dry process and the wet
process. Dry process now has almost replaced the wet process since wet process consumes high
thermal energy for drying the moisture. In dry process the rock is the principal raw material, the
first step after quarrying 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. It is then ground in ball mill to fine powder with other
ingredients like clay/iron ore/bauxite to create a combination of values for silica/alumina/lime etc
in the mixture. The ground powder is then sent to blending silos for uniform mixing of
components added during the grinding stage. This blended material is feed to the preheater /
calciner. The preheater is a group of cyclones placed over one another where in material comes
down and hot gases goes up heating the material and calcining it in the process.
The only difference between dry process and the wet process is that in the later on the crushed
raw material is ground with water to form the slurry. This slurry is then filtered and pumped to
the kiln and the rest of the process is exactly the same as that of the dry process.
SPECIFICATION

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British standard Specification # 12 are followed in Pakistan. For a good quality cement initial
setting time should not be less than 45 minutes and the final setting time should not be more than
10 hours, all existing cement plants in Pakistan meet these quality criteria.
IMPACT OF PROCESS ON COST
The process used has a major impact on the cost structure of the company. Using old and out-
dated forms of technology not only effect the overall quality of the final product but result in
higher maintenance costs, more replacement of parts etc. and the result is less competitive prices
in both the domestic and foreign markets. We can see that Indian cement is sold at lesser prices
since they have been able to cut back on their costs of production. This has been done by
lowering energy costs via reliance on coal rather than furnace oil for running and operating their
processes.
Top 10 Cement Companies In Pakistan
Pakistani cement industry is included in those industries which were present even before the
partition of the sub continent, like textile Industry in Pakistan. Why this industry has survived so
long? The reason behind this is the presence of the raw materials. Pakistan is so rich in
possessing very great reserves of limestone and clay which can support the cement industry for
another 5 or 6 decades.
Cement factories has a very influential part in making the of socio economic sector of Pakistan
strong.
D.G.KHAN CEMENT COMPANY:
This company is the midst of the top list manufacturers of cement in Pakistan. It has a capacity
of producing 14,000 tons of cement per day. D.G.Khan cement plants are based on advanced dry
technology. Two of the plants are located at Dera Ghazi khan and one at Khairpur Distt.
Chakwal. Regional sales offices of D.G.Khan cement carry on a countrywide distribution
network. The unmatched and consistant quality of the cement makes it a top choice for projects
of national rectitude both locally and internationally. It is a listed company on all stock
exchanges in the country.
2. LUCKY CEMENT COMPANY:
LCL are renown for the production of quality cement in Pakistan, with a production capacity of
7.75tons/annum. It possess ISO 9001:2008 and 14001:2004 certificates. It is listed in all stock
exchanges and is the 1st company exporting enormous quantities of loose cement.
3. ASKARI CEMENT LIMITED:

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It is a part of fauji foundation with two plants one at Wah and other at Nizampur. It produces
8,295tons of cement per day. It is the first to win ISO 9001 and ISO 14001 awards. It is a proud
member of APCMA playing its part in the commercial development of Pakistan.
4. MAPLE LEAF CEMENT:
Third largest cement factory of Pakistan is the Maple leaf cement company. As an alliance with
the West Pakistan Industrial Corporation and Canadian government, it was set up in 1956. It
operates two production sections for grey cement and one for white cement located at Daudkhel
Distt. Miamwali, an area with abundant raw material required for the cement production. Its
products are delivered to local as well as overseas markets.
5. ATTOCK CEMENT LIMITED:
Started from the year 1981, the commercial manufacturing at ACPL started in 1988. Right from
the beginning ACPL has prospered through team work and has shown stead fast growth in the
last 25 years. In addition to the hard work, it has boosted its efficiency through persistent
modernization of the plant. ACPL has been a part of major and semi government and private
schemes. This company has attained higher criteria in local and regional markets by providing
quality products.
6. PIONEER CEMENT:
In accordance with the name, Pioneer cement is known for its quality products since the
beginning of the project. In 1994 a European plant with quality control features was deputed.
Second unit was structured in 2006. Customers confide in Pioneer cement industry because of
the superior quality products.
7. KOHAT CEMENT COMPANY LIMITED:
Established in 1980, Kohat Cement Company manufactures grey and white cement. Its head
office is located in Gulberg, Lahore while the plant is located 60 kilometers away from
Peshawar in the Kohat region. Producing grey cement about 2.6 tons/annum and white cement
about 0.1tons / annum, Kohat cement supplies cement not only in Pakistan but also in the
neighboring countries like India and Afghanistan.
8. THATTA CEMENT COMPANY LIMITED:
It was incepted in 1980 as a public limited company. Its administrative control was taken over
by Al-Abbas group in 2004 after getting in hand 100% shares of the company from the

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privatization Commission. Its production capacity is 1500tons/ day. It runs dry process
technology based Japanese plant.
9. DEWAN CEMENT:
It holds an ISO 9001:2008 certificate. Its two plants located in Karachi (1982) and Hattar
(1995) have a total capacity of 5800tons/day and 3800tons/day , respectively. Dewan Cement
has always sustained its excellent quality and has attained a big name in the cement sector.
10. FAUJI CEMENT
An accredited name in cement industry is that of Fauji cement incepted in Rawalpindi in the
year 1992. It’s highly reputed as an excellent cement producer. In the Last 19 years it has been
of fundamental importance to Pakistan’s economic development as a reliable source of quality
products.
MARKET SEGMENTATION
MAJOR PLAYERS:
The key players in the industry, which attained billion rupees mark (in sales) are listed below:
Name of the Company Sales (in billions of Rupees)
Fauji cement 1.401
D.G. Khan Cement 1.045
Cherat Cement 1.302
Fecto Cement 1.098
Dadabhoy Cement 1.000
MARKET SEGMENTATION
The cement market in Pakistan is divided into two zones: the North zone and the South zone.
The North zone includes Punjab, Azad Kashmir, N.W.F.P. and the upper region of Baluchistan.
The remaining area of the Baluchistan and entire Sindh constitute the Southern zone.
Historically the Northern zone has faced an under-supply situation while the Southern zone has
experienced over-supply situation. The demand of the Northern zone was used to be met by the
production of the Southern zone. After the establishment of new plants especially D.G. Cement

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(with a capacity of over 1 million tonnes per annum) the Northern region has also become almost
self sufficient in the cement the province–wise distribution of cement plants is given below
The cement industry is very unevenly distributed in the country with a vast difference in capacity
and production as can be seen in the following tables. The number of plants is less than double in
the south zone as compared to those in the north but total production in the latter region is nearly
3 times that in the former area. Even then all units charge the same price when in reality their
technology, layout, product range and efficiency differs. This implies a misuse of cartel power
exerted by the APCMA.
Statement of Installed Production Capacity
As on February 2017
Sr. No. Name Of Unit Operational Capacity
Clinker Cement
1 Askari Cement Limited - Wah 1,050,000 1,102,500
2 Askari Cement - Nizampur 1,500,000 1,575,000
3 Attock Cement Pakistan - Hub Chowki, Lasbela 1,710,000 1,795,500
4 Bestway Cement Limited - Hattar 1,170,000 1,228,500
5 Bestway - Farooqia Cement Limited - Hattar 1,035,000 1,086,750
6 Bestway Cement Limited - Chakwal 3,428,571 3,600,000
7 Bestway-PakCem Company Limited - Chakwal 1,950,000 2,047,500
8 Cherat Cement Company Limited-Nowshera 1,050,000 1,102,500
9 Dandot Cement Limited - Jehlum 480,000 504,000
10 Dewan Hattar Cement Limited - Hattar 1,080,000 1,134,000
11 Dewan Hattar Cement Limited - Dhabeji 1,680,000 1,764,000
12 D.G.Khan Cement Limited - D.G.Khan 2,010,000 2,110,500
13 D.G.Khan Cement Limited - Chakwal 2,010,000 2,110,500
14 Fauji Cement Company Limited - Fateh Jang 3,270,000 3,433,500
15 Fecto Cement Limited - Sangjani 780,000 819,000
16 Flying Cement Limited - Lilla 1,140,000 1,197,000
17 GharibWal Cement Limited - Jehlum 2,010,000 2,110,500
18 Kohat Cement Company Limited - Kohat 2,550,000 2,677,500

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19 Lucky Cement Limited - Pezu 3,605,714 3,786,000
20 Lucky Cement Limited - Indus Highway, Karachi 3,428,571 3,600,000
21 Maple Leaf Cement Factory Limited - Daudkhel 3,210,000 3,370,500
22 Pioneer Cement Limited - Khushab 1,933,571 2,030,250
23 Power Cement Limited - Nooriabad, Dadu 900,000 945,000
24 Thatta Cement Limited – Thatta 465,000 488,250
Total 44,706,428 46,941,750
DEMAND AND SUPPLY ANALYSIS OF CEMENT INDUSTRY:
The year 2015 was a busy one for Pakistan’s cement industry. Not only did local demand for
cement increase by 12% in one year, but four cement companies (Attock, Cherat, DG Cement
and Lucky Cement) announced their intention to increase production capacity. When these plans
reach fruition (probably in the next year or so), they will effectively increase the overall
production of cement by 7.7 million tons – from the current 45 million tons to 53 million tons
per annum.
The increase in demand and planned increase in production capacity have many implications for
the industry; however, to understand them fully, it is essential to step back and examine the
dynamics of this sector.
Despite having an extremely well developed cement industry, Pakistan’s per capita cement
consumption which stands at 140 kgs, is the lowest in the world – the global average is 400 kgs
per capita. Poor economic growth, lack of government interest in infrastructure projects and high
real estate and housing prices have kept local cement demand fairly low and for many years,
cement manufacturers, especially those based in the south region (Sindh and Balochistan), have
focused mainly on exports. Manufacturers whose production facilities are in the north (KPK and
Punjab) have shied away from exports due to prohibitively high costs of inland transportation.
However, in the last six years, the export market has shrunk, so that whereas the industry
exported about 10.98 million tons (26% of its total production capacity) in 2008, the first five
months of FY 2015-16 saw this number drop to 2.56 million tons (a mere five percent of total
production capacity). This reduction in exports was due to two major factors. One, prohibitively
high sales tax and excise duties (both federal and provincial) make the price of Pakistani cement
uncompetitive in the international market and two, the drying up of traditionally thriving export
markets such as the UAE and South Africa which have now built up their own cement
production capacities and no longer require cement from Pakistan. In fact, South African
manufacturers recently went to the extent of persuading their government to impose anti-

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dumping duties on Pakistani companies such as Attock, Bestway, DG, and Lucky in order to
protect their own interests.
The impact of lower exports has been especially significant on companies such as Lucky
Cement, which over the years has invested in developing their own terminal at Karachi port as
well as an in-house export fleet. Amin Ganny, CEO, Lucky Cement, puts a statistical value on
this saying that “whereas the company used to do 40% local sales and 60% exports in 2008,
today we export about 25% of our production whereas rest of the cement we produce is sold
locally.”
With the prices of coal (the fuel used in cement production) in decline from $140 per ton to
$70 and now to $52 per ton, the cost of producing cement is lower and this makes most cement
manufacturers optimistic about the future, although they are adamant that the government
must reduce sales tax and excise duties to make the product even more cost effective.
It is therefore just as well that although exports have dwindled, there has been an upsurge in local
demand. The announcement of the China-Pakistan Economic Corridor (CPEC), a $46 billion
mega project, which will include infrastructure development projects across Pakistan and the
lowering of real estate prices – which has led to the initiation of several new housing projects -
are the two major reasons for increased local demand.
Mohammad Fazlullah Shariff, CEO, Thatta Cement, says that about 60% of the cement produced
in Pakistan at present is used in infrastructure projects, and the housing sector accounts for the
remaining 40%. However, Syed Muhammad Anwar, CEO, Dewan Cement, is of the opinion that
the reverse is true.
“Real estate and builders are consuming 70% of cement while 30% is used in infrastructure.”
Irfan Sheikh, Director Finance and CFO, Bestway Cement, tends to agree with Anwar and says
that the lion’s share of business is coming from the housing sector. This makes sense considering
that according to news reports from May 2015 (Source: The News), Pakistan faces a housing
backlog of nine million units, particularly for poor and disadvantaged people and the government
has announced several plans to address this shortfall.
This combination of increased demand from housing and infrastructure has in a way forced
cement manufacturers to shift their focus to the local market. Some, like Lucky Cement, initiated
mass media advertising campaigns in 2012 to build up their brand image – not only with
contractors and builders who are generally the decision makers when it comes to choosing a
brand of cement, but also with customers building their own homes. Others, like Bestway (which
is also advertising now), have introduced new products, such as bonding agents and tile grout in
addition to their existing cement product lines to establish a USP of sorts for themselves.

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Establishing a USP is not something that cement manufacturers have paid much attention to in
the past, and many still think of cement as a commodity rather than a product with marketing
potential, and Sheikh strongly believes that because cement has been selling by itself, companies
have simply not bothered with marketing.
However, considering that cement prices are not fixed (they vary according to quality and
consumer perception), local demand is going to dominate in the future and there will be
increased competition due to an increase in production capacity, there is now certainly room for
companies to market themselves, regardless of whether they choose to go for a B2B approach or
target end consumers directly.
One way of targeting end consumers directly could be through bringing about a change in the
SKUs. At present, the cement industry offers loose cement for major builders and contractors,
but the only SKU available to small time consumers of cement (i.e. those using it to build
personal homes or for DIY projects) is the 50 kg bag. Although smaller sized SKUs such as 25
kg and 10 kg are available in international markets, local cement manufacturers have not
ventured in that direction so far. A reason why, says Sheikh is the cost of the packaging which is
made from imported craft paper and costs about Rs 20 per bag for 50 kg of cement.
“If you reduce the packaging size to say 25 kg, it would not automatically reduce your packaging
cost by 50%; it may only reduce it by two to three rupees, and therefore on a per kg basis, it may
become more expensive to package smaller quantities.”
Another reason why companies have not worked on new SKUs is due to the fact that it would
require a large capital investment to acquire packing machines for new sizes. However, as the
Pakistani market develops, this may become a viable and necessary investment.
Marketing, whether in the form of varying SKUs or by investing in advertising, might also
become essential in the future, because despite increased demand and the significant potential for
growth, the industry still faces major challenges. Firstly, the import of cement from China and

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Iran through official and unofficial channels poses challenges for local producers and although
the government has imposed a 20% import duty on Iranian cement, there is still a great deal of
supply. Secondly, Pakistani cement manufacturers still have a surplus capacity of nine million
tons (mainly due to the fact the exports are down) that still needs to be absorbed in the local
market.
Of course, it would be fair to question why manufacturers are announcing an increase in
production capacity when there is still a surplus that needs to be disposed of. Opinions on the
subject vary.
Shariff believes that the larger cement companies have a lot of surplus cash and are merely
increasing capacity because they want to invest the money somewhere “but I think they haven’t
really done their homework; they need to undertake a feasibility report but no one has considered
this.”
Sheikh, on the other hand, says that “it takes on average about 2.5 to three years to set up a new
cement plant. By the time the announced capacities come online, the capacity utilisation of the
industry (currently 77%) will have reached 90% which will be a very comfortable position to be
in.” Therefore he believes that this expansion will start to make sense when that happens.
Of course the huge caveat to all this is the rate of economic growth on which the cement industry
and its future progress depends.
“Cement consumption has a direct correlation to economic growth, so if the economy is doing
well then cement consumption will also do well,” says Sheikh.
“As of now the government is focusing on infrastructure and housing, but we can only have
sustainable growth and an increase in per capita consumption if this economy continues to grow
beyond seven percent per annum.”
With the prices of coal (the fuel used in cement production) in decline from $140 per ton to $70
and now to $52 per ton, the cost of producing cement is lower and this makes most cement
manufacturers optimistic about the future, although they are adamant that the government must
reduce sales tax and excise duties to make the product even more cost effective and ensure
growth over the next few years.
As Shariff points out, “cement is an important industry for an agrarian economy like Pakistan; it
generates a lot of employment and therefore it makes sense for the government to focus on this
industry.”
Factors, which can possibly change the surplus position into a near equilibrium between demand
and supply, are:
 APCMA actions to avoid price decline
 Delay in implementation of planned additions and expansions
 Efforts to export cement
 Increase in demand if construction of huge mega-size projects starts.

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COST STRUCTURE
The cement manufacturing involves several raw materials used in different proportions. The
main raw material consists of limestone, gypsum, silica etc. Each tonne of cement requires about
1.7 tonnes of limestone (80 % by volume), gypsum, and silica. All these components of raw
material are easily available in Pakistan, therefore are cheap. Raw material has a very trivial
share in the total cost structure and therefore doesn’t affect it much either.
The other inputs include fuel (furnace oil), packaging, power (electricity), and other expenses.
The major part of the cost is claimed by fuel, power, and packaging, i.e. about more than 46 % of
the total cost. Any fluctuation in the prices of these three inputs has a very significant effect on
the over all cost. A breakup of different input cost in the overall cost structure of a 50-kg bag of
cement is given below.
Items Rs. (per bag)
Raw material 124.46
Packing material 22.94
Fuel 28.59
Power 22.84
Salaries and Wages 34.25
Stores 21.15
Mfg. & Selling Overhead 22.61
Operating cost 157.84
Financial expenses 87.83
Total Cash Cost 522.51

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Depreciation 20.05
Total cost per bag 542.56
Another important cost consideration is the process employed by the unit to produce cement. The
manufacturing process can be of any of the 3 types:
 Wet Process
 Semi-Wet Process
 Dry Process
COST/PRICE RELATION
The cement manufacturers advocate their point based on the increase in the prices of inputs.
According to APCMA, the increase in cement prices is attributed to the following events:
 A 90 % increase in prices furnace oil over February 2013 to February 2016;
 85 % increase in electricity charges over July 2010 to July2017,
 79 % increase in prices of paper bags during November, 2010 to December 2017
 A 128 % increase in excise duties over July 2009 to June 2017.
CHARACTERISTICS OF THE INDUSTRY
MARKET STRUCTURE
The cement produced in Pakistan by different manufacturers is virtually of the same quality and
standard, that is why consumers do not perceive any quality difference in the cement produced
by different manufacturers; therefore, the market for cement is oligopolistic. In oligopolistic
competition the market consists of few sellers who are highly sensitive to each other’s pricing
and marketing strategies. Each seller is alert to the competitors’ strategies and moves. If one
company slashes its price by say 10% buyers will quickly switch to this manufacturer and the
other manufacturers will respond by lowering their prices. In contrast if one oligopolist raises its
price, the competitors might not follow this lead and the oligopolist then would have to retract its
price increase or risk losing customers to the competitors. But the cement manufacturers have
formed a cartel APCMA and have set monopolistic prices. This is evident from the fact that all

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manufacturers sell at almost the same price even though they use different processes, have
different technologies and different transportation cost.
ROLE OF ADVERTISING & PROMOTION
In Pakistan all cement manufacturing companies adhere to the British Specification # 12. The
product of each company is virtually same in terms of quality and price. The only role that
advertising play in this situation is that, it reminds the customers of the presence of the company
in the market.
DISTRIBUTION FUNCTION
The cement industry is characterized by the need of an elaborate distribution system. The role of
distribution becomes more important when one area of a country is deficient in the production of
a product while the other is producing the same product in excess of the demand. The presence
of the product in the market is what makes or breaks a company. This is true for both export
market and the local market.
NATURE OF THE INDUSTRY:
Before privatization the cement industry was highly regulated. Under the control of SCCP the
prices were kept to an artificially low level. However after privatization, the SCCP lost control
over the prices of the cement, however the industry is subject to the policies of the MCA and
ECC.
SENSITIVITY OF THE INDUSTRY
 Technological Change
The industry is capital intensive and is defined as one that makes use of the latest technology to
deliver quality product to the customer. Consideration needs to be given to this factor when
making capital budgeting decisions to arrive at the appropriate amount of capital that needs to be
invested in acquiring plant and equipment. This has a direct correlation with the type of the
technology that the firm wishes to use.
To remain competitive in the market, the players need to follow the highest standards of the
technology, but acquiring new technology and replacing the older one with the newer is very
expensive and most of the time unfeasible. Any major technological change can cause the entire
plant to become obsolete. As such there is no major technological changes affecting the cement
industry in the near future.
 Change in Energy Prices

20. 20
The industry is highly exposed to the change in energy prices because energy (fuel & power)
comprises around 40-45% of the total cost of production. Sensitivity analysis shows that a 5%
increase in furnace oil prices results in a 1% decrease in the gross profit margin. Some
companies that use wet process are highly exposed to change in the energy prices as the wet
process consumes 50% more energy than the dry process.
 Dumping Effect
In the international market Pakistani cement industry is exposed to the dumping by the Chinese
manufacturers.
 Effects of Exchange Rates
The effect of exchange rate on the cement industry is quite complex. On one hand, weakening of
Pakistani Rupee makes the Pakistani exporters more competitive in the international market and
on the other hand the cost of manufacturing increases because the cement has a high forex
component in the form of energy, capital and transportation.
DEMOGRAPHIC EFFECTS
 Size & Growth Rate of Population
The size of population and the population growth rate besides the consumption habits of the
customers have a great impact on any industry. The per capita consumption of cement in
Pakistan is around 71 kg against the international standard of 100 kg. It means that there is a
potential of increase in the consumption of cement in future. Pakistan has one of the highest
population growth rates in the world, which is around 3%. It means that in future the increase in
the housing needs will increase the demand for cement.
PROBLEMS AND ISSUES
TAXES
The cement sector contributes Rs. 15-20 billion per annum to the National Exchequer. The
taxation policy should have ensured lower prices since cement is an essential commodity for the
development of an economy. The industry in Pakistan is paying Rs. 90 per bag as excise duty as
compared to Indian producers who pay only Rs. 17.50 per bag. If the excise duty rates are
revised to Rs. 300 per tonne then the price owf domestic cement can be reduced to as low as Rs.
160 per bag. Inordinate and frequent increases in taxes create a dilemma for local cement
manufacturers since they have to appreciate their prices every now and then, adding to the lack
of stability in the form of fluctuating prices. This has led to a reduction in the demand for
cement. The rates of excise duty have been escalating at the tremendous rate of 350% in the last
10 years and 200% in the previous 5 years. This is the reason per capita consumption of cement
in Pakistan is as low as 71 kg. Import of machinery for expansion was exempt from duties until

21. 21
1995 after which 10% regulatory duty was imposed on all imported goods. This led to arise in
the capital cost of new plants and on-going projects. Apart from excise duty the sector adds to
the state revenue in the form of:
 Provincial royalties on limestone, gypsum etc.
 Import duties on spares and parts
 Octroi on all items purchased
 Excise duty on all raw materials
The rapid escalation in excise duties has transformed the sector to a loss making industry from
one that was earning around 35% profit margin previously.Under the principles of taxation only
those commodities should be subjected to high rates, the consumption of which is intended to be
restricted and discouraged such as cigarettes and alcoholic drinks. On the contrary cement is a
basic commodity which has the potential to promote development efforts and therefore its
availability in the market at a reasonable price should be ensured.
DEBT SERVICING
The financial crisis in the industry has led to a severe liquidity crunch in this sector. The debt
burden comprises of $300 million owed to international agencies and around Rs. 20 billion debt
is outstanding in relation to the local banks and DFI’s. Financial charges have been on the rise
ever since 1992 when they amounted to only Rs. 428 million, while in 1998 the same amount
had risen to Rs. 1595 million. Cement manufacturers are in a fix as to what to do to remedy the
situation. One option available to them is liquidation and 4 of the companies had to eventually
resort to this. Fauji Cement, D.G.Khan Cement, Pioneer and AC Wah are nearing a default
situation on their debt servicing on loans obtained from foreign institutions such as International
Finance Corp. and Commonwealth Development Corp. total credit liabilities of the sector
towards local banks is to the tune of Rs. 23.881 billion. Details are as follows:
COMPANY LOANS(Rs.million)
Pioneer 1450.35
D.G.Khan 312.36
Cherat 284.95
Fecto 215.86

22. 22
Maple Leaf 2919.45
Javedan 388
Dadabhoy 296.5
Essa 225.32
Kohat 444.26
Slag 20.77
Zeal Pak 33.81
Dandot 83.74
Lucky 136.34
Pakland 603
Fauji 617.29
Companies have been unable to pay interest due on loans, owe payment to utility companies like
WAPDA and KESC. Depletion of stocks of furnace oil and paper bags for packaging and
defaults in payments to suppliers adds to their burden bringing them nearer to the edge. Late
payment of bills will lead to an additional loss in the form of 10% surcharge. Suppliers on the
other hand will demand immediate payment with the due penalties to avoid a complete default
by the manufacturers. Low stocks of paper bags will delay dispatches of orders and tarnish the
goodwill developed with the consumers.
INCREASING CAPITAL COST OF PLANTS
The cement industry is a capital-intensive industry with heavy reliance on the engineering sector
of the economy. In addition to this, the manufacturers depend on technology, which is usually
imported when setting up a new plant or considering expansion. So far European and American
plants are being set up in the country. The cost of a 2000-tonnes per day plant lies within the

23. 23
range of Rs. 3.5-4 billion and for a 3000-tonnes per day plant the capital cost is approximately
Rs. 5.5-6 billion. This large capital outlay is increasing financial charges.
70% of the plants in Pakistan have been supplied by a Danish firm named FL Smidth. Japan and
Germany have sold only 2 plants here. The situation now is such that FLS is now a price-
making monopolist who is causing a steady upward trend in the price of its plants. All the new
15 plants being set up have been sold to us by FLS except those of Saadi Cement and Kaiser
Cement. Due to persistent devaluation plants which cost Rs.35-80 million in 1993 are now in the
range of Rs. 3-6 billion. This hinders expansion plans and adoption of latest technology by the
new and existing plant.
GOVERNMENT POLICIES
The cement industry continues to operate under pressure of inconsistent Government policies
announced from time to time.
These briefly are:
 Capacity taxation was abolished from August 1993 which took away special incentives for
increased production which, in turn could have revived the industry in the larger national
interest.
 The taxes and duties on inputs have consistently been increased. The system of charging
excise duty is extremely unfair as cement being voluminous product, freight and allied
charges vary widely from place to place.
 The price of furnace oil, a major cost component of cement manufacture, has increased
sharply. Just now it has increased to Rs. 8800 per tonne.
Import of machinery for expansion project was a exempt from import duties and sales tax which
expired on June 30, 1995 and additional duties have been imposed on imported goods. This has
increased the capital cost of the on-going projects in addition to the effect of devaluation of the
Pak Rupee.
EXPORTS
Since consumption of cement in southern region has gone down and northern region has attained
self-sufficiency, units located in southern region are forced to cut down their capacity utilization.
The possibility of cement export is the proverbial silver lining for the recession-torn industry.
While there are cement deficient countries like Sri Lanka and Bangladesh importing
approximately 2 million tonnes per annum each, there is tough competition from India and
Chinese suppliers.

24. 24
In fact, apart from the prices offered by Pakistani manufacturers, lack of facilities for handling
bulk export of cement has become a major impediment. Where bulk handling is cheaper than
handling bagged cement. Export of cement is necessary for the existence and survival of the
industry rather than a source of profit.
PROBLEMS
Dumping by Chinese manufacturers, lack of incentives, high costs of production and freight
charges have made the cement export unviable. In the recent development, there has been a
radical change in the political scenario of Afghanistan. The war-ravaged country is a prime target
for the northern producers to sell their cement. This possibility is still remote until the situation
settles. According to an IRS all countries except Bangladesh and Philippines are in a position to
export cement and hence pose competition for Pakistan. Yemen is another potential destination
but there too government subsidized cement from Gulf countries will pose serious competitive
threat.
Apart from non-competitive prices domestic cement manufacturers face problems in the form:
 Inadequate port facilities
 Present export rebate of 12.5% of FOB i.e., Rs. 300 and Rs. 270 per tonne for cement and
clinker respectively is very high
 Clinker/cement are not Non-Traditional Exports and therefore denied extra 50% rebate
 Export of cement allowed only via sea which eliminates cheaper road transport through
Afghanistan and into Central Asia
 Lack of sufficient duty and surcharge drawbacks. Reimbursement of these duties to the
exporter should be made.
CONCLUSION
From the research study, we come to the following conclusion.
 The cement industry of Pakistan had gone through many experiments and practices.
Cement industry experienced nationalization, denationalization and privatization.
 Cement industry plays a very important role in the economic development of Pakistan.
 The role of cement industry in the economic development had been very reasonable as it
contributed in the economy in terms of profit, investment, returns to investors, taxes,
assets, equities, sales volumes and number of employees.
 However, the performance of cement industry did not remain satisfactory on account of
optimum utilization of the total capacity of plant and the achievement of desired level of
indigenization.
 The cement industry could not produce satisfactory skilled and trained manpower.
 Cartelization has a negative impact on the cement industry.
 Cost of Energy is the main issue that affected cement industry of Pakistan.

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RECOMMENDATIONS
Following are the recommendations for the cement industry of Pakistan
 Like other industries in Pakistan, the cement industry also lacks a long-term vision due to
which it is unable to identify the shortcomings in the way of its sustained growth.
Thereforecement industry should develop long-term and strategic vision to enhance its
production and exports.
 It is really very important for every industry to adopt modern technology for
improvement of its production efficiency, so the cement industry should adapt new and
advanced technology in order to produce best quality cement to meet the local demand
and export demands.
 Like other industries in Pakistan, the cement industry also lacks a long-term vision due to
which it is unable to identify the shortcomings in the way of its sustained growth.
Therefore the cement industry should develop long-term and strategic vision to enhance
its production and exports.
 It is really very important for every industry to adopt modern technology for
improvement of its production efficiency, so the cement industry should adapt new and
advanced technology in order to produce best quality cement to meet the local demand
and export demands.
 The cement industry of Pakistan should also adapt a most advanced technology for
energy conservation and environmental improvement.
 The cement industry should not be dependent on cartelization for revenue generation; it
should find other means for profit maximization. The government should intervene to
restrict these cartels.
 There is no any research & development centre in the cement sector that could work for
efficiency in production, quality, marketability and conducting feasibility for production
of new products, optimizing production cost and expansion of cement industry.
 Government should decrease tax rate on cement which is comparatively higher than other
cement producing countries.
 Government should make serious efforts to minimize cost of energy of cement industry
as it is more than half of the total COGS.
 The government should devise friendly policies in order to promote and encourage the
cement industry.
 The government should make railway completely operational because it is the most
reliable and cheapest source of transportation for not only cement industry but also for
the entire industry.

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Websites
www.apcma.com www.pacra.com.pk
www.finance.gov.pk
www.pbs.gov.pk