These reports have been made by me and my classmates at IBA Karachi. The sole purpose of putting these reports here is to help the free flow of knowledge .

1. CEMENT
INDUSTRY
KHUSHBAKHT SUHAIL
WARDA HASSAN
SAAD MASOOD
AIZAZ HAQ
FEHAM ALI

2. FROM THEN TO NOW…
• 4 cement factories - Capacity of 0.5 Mln tons
1947
• 14 Cement plants – 2.5 Mln tons
• The industry was nationalized
1972 • The State Cement Corporation of Pakistan (SCCP) was established
• Cement industry was deregulated (with establishment of 7 plants)
• GDP growth rate of 6.5%, high imports of cement
1985-86 • Process of privatization occurred in 1991
• Increased production capacity from 16 Mln tons in 2000
2000-10 to 44 Mln tons in 2010

3. SIGNIFICANCE OF INDUSTRY
• Direct and Indirect Taxes – Rs 30.0 Million
• Employment (Direct and Indirect) – 150,000 (Approx.)
• 5th Largest exporter of the world
• Cement exports ranked 10th in the major export list
of Pakistan
• Major Export Markets
– Afghanstan
– India
– African Countries
– Middle Eastern Countries
– Iraq

5. Year Per Capita
Consumption
2003 75 kg
2007 110 kg
2011 145 kg
World average = 270 kg

6. Growth Rate
20%
2.96%
1990-2002 2003-2007

7. FIRM
STRUCTURE, STRATEGY
AND RIVALRY

8. FIRM STRUCTURE
• Oligopolistic structure
• 29 Cement Plants
• Installed capacity of 44.6 million tons
• Two Regions Market Share
1. North 80% 12.70%
9.80%
2. South 20% 7.60% 7.10%
5.50%
• Major Players
DG Lucky Maple Pioneer
cement cement leaf cement

9. N.W.F.P
Mustehkam
Kohat Dewan Hattar
Askari (Wah) Bestway
Cherat Fecto
Fauji
Askarl Gharibwal
Maple Leaf
Pak Cement
Lucky
Dandot
Zaman
Pioneer
Punjab
DG Khan
Balochistan
Sindh
Attock
Pak Slag
Dadabhoy
Javodan
Thatta
Lucky Dewan A.C. Rohri
Al Abbas
Zeal Pak
Going forward, scale of production and plant location will play a major role in determining the performance
of a company

10. FIRM STRUCTURE
• All Pakistan Cement
Manufacturing Association
1. Projecting the cement industry to
the government
2. Supplies information about
cement industry
3. Interacts for industry problems
4. Provides technical information on
use of cement

11. FIRM STRATEGY
• Prices similar
• No significant product
differentiation – 90-94% OPC
• Production capacity expansion
• Technology
• Location of plant near raw
materials
• Transportation feasibility

12. The TWIST…!!!
• CARTEL under the umbrella of APCMA !!!
• Operating from over a decade !!!
• Under probe of Monopoly Control Authority
• Cement companies have been accused of
cartelization thrice
• Fine of Rs. 6.35 Billion in 2009 by Competition
Commission of Pakistan (CCP)
• Then came price wars – prices dropped 26% in
one year
• Harmful for small manufacturers

13. AROUND THE WORLD
• Cement Cartels present in :
1. Pakistan
2. India
3. South Africa
4. Bahrain
5. USA
6. China

14. Cement Cartels
India
• 20 companies control 70% of the market
• Price cartel – prices have risen by over 40% over
the past year.
• Cement cartel pressurized the Indian
Government to impose non-tariff barriers on
imports of cement to reduce supply from
Pakistan.
• INDIA - 300 million tonnes – operating at near
full capacity.

15. RELATED AND
SUPPORTING INDUSTRIES

16. CONTENTS
• Housing & Commercial Plotting
( Construction Sector)
• Government Projects
• Shipping Industry
• Packaging Industry
• Mining & Quarrying Industry
• Transport & logistics

17. Housing & Commercial
Plotting
• 40 % of the Cement Demand
• lending of 55 PKR billion to the
private sector
• 950 billion in the MTDF
• Housing Sector makes up to
• 50 % of the Construction Sector
• Rising trend of vertically rising
structures across the world.

18. Government Projects
• Roads, Dams, Canals, Bridges, underpa
sses
• Significance of (PSDP)
• Maintenance Projects-
roads, highways, after rain spoils.
• Natural Calamities- abnormal rise to
demand industry- new housing
schemes for affected

19. Shipping Industry
• High cost is still a barrier in
exploring the right potential
• Indian cargo that loads up in 6
hours, here we take 3 days !!
• Our outreach is up till South Africa
• Russian Market unreachable
• Prices gets uncompetitive as soon
it reaches the docks of USA

20. Packaging Industry
• Polypropylene/ Polyethylene bags
• Growth of 15% compared to the
world growth of 8 %
• Packaging is of due importance for
the cement to remain of good
quality
• Plastic bags & Paper bags
• Two main companies that supply
plastic bags, shortage of 12 million
bags.

21. Mining and Quarrying
Industry
• Rich source of minerals and raw
materials
• Mining and quarrying sector direct
demand from Cement Sector
• Low skill allow high employment
• Development of other kinds of Cement
would allow us to utilize much of
untapped area in this sector
• Mining in return has allowed us to
discover huge deposits of
gypsum, limestone, etc. that are
essential in the production of cement.

22. Transport & Logistics
Logistics
• Russian high price tag opportunity
• Not yet captured Russian market
• Local transportation Pakistan( $ 8/ton), India ( $
3/ton), Iran far more competitive
Transport
• Trucking Sector primarily depends a lot on Cement
industry
• Rail transportation – efficient yet of same cost
• Heavy Bulkers also earn revenues in large orders

23. Transport Cont…
• 20 % of cement cost goes under
transportation - India working to
reduce its existing 7 % cost element.
• Cement factories are spread over
two broad regions - Southern region
is relatively economical
• Northern region caters
Afghanistan, Iran and
closer areas
• Inland freight subsidy expected to
reach 35 to 50 % of the overall
subsidy by end of 2011.

24. FACTOR CONDITIONS

25. RAW MATERIALS
The raw materials required for
Cement manufacture:
• Limestone (75-80%)
• Clay(15-20%)
• Gypsum (5%)
• Iron Ore
• Pakistan has immense reserves of various
minerals.

26. TYPES OF CEMENT
• Ordinary Portland Cement (OPC)
• Sulphate Resistant Cement (SRC)
• Blast Furnace Slag Cement (BFSC)
• Slag Cement

27. STEPS FOR THE MANUFACTURE OF
CEMENT
• Quarrying and crushing
• Blending and storage
• Raw milling and homogenizing(Uniform Quality of
raw materials)
• Burning
• Cement Milling ( adding Gypsum)
• Quality Assurance
• Packaging and cement despatch

28. Sources of Energy
60-70% is the cost of energy in the production of cement
• Coal
• Gas
• Oil Furnace
• Electricity

29. Furnace oil Diesel Coal Electricity
Financial Year
(Rs./Ton) (Rs./Litre) (US$/Ton) (Rs./KWH)
Jan-11 54,600 78.74 140.00 7.15
Upto - Dec-
53,670 74.72 105.22 6.63
2010
2009-2010 46,692 69.63 92.05 5.23
2008-2009 39,900 61.24 105.64 5.23
Source: APCMA
Input prices

30. • At present most of the cement companies have switched to
coal or gas as their basic fuel
• Cost of cement production per ton by ;
• furnace oil- Rs. 2083
• coal-Rs 868
• Initially 90% of coal requirement of Pakistan cement industry
were being met by imports
• However the price of coal in the world market soared from
$92.5 per ton to $140 per ton from 2010- Jan 2011 .

31. • Because of this, firms are now relying on local coal
reserves; example Dandot Cement Limited acquiring 70%
of the coal from Quetta.
• Load shedding of gas is another major issue. Domestic
consumption is very high.
• The companies were relying on WAPDA for electrical
supply but now the companies have their own electricity
generation plants due to the problem of load shedding.
• Management considering cheaper fuel sources such as
RDF and Waste Heat Recovery Plant.

32. Reasons to Import Coal
• The production of one tonne of cement
consumes, nowadays, an average of 3400-5000 MJ fuel
energy.
• 50% in clinker burning, 20% as sensible heat in the Pre-
heater exhaust gas. 3%taken away by clinker. 14% heat of
cooler exhaust gas, 11% loss as radiated heat and 1% others.
• Pakistan has fourth-largest coal reserves in the world but it
is importing 2.5 million tones of coal per annum for the
cement industry.
• Local coal contains 6% of sulphur which is not suitable for
cement industry.
• However, the imported coal contains 1% of sulphur.

33. Fuel Alternatives
• The cement industry may go in for used tyres to meet the
40% of fuel requirements of the industry – Like Lucky
Cement and DG khan.
• This method is called Refused Drive Fuel project
• Recycling of the waste by making it in bundle shape and
then these bundles would burn in the kiln.
• Zero pollution and environmental problems
• Pakistan can import sulphur washing plants from Europe
• ‘Waste heat Recovery Plant’ set up by Lucky and DG cement.
It utilizes waste heat to generate electricity thereby cutting
costs and reducing dependence on WAPDA.

34. • Pulp, paper and cardboard
• Plastics
• Packaging
• Textile wastes
• Rice husk
• Meat bone meal and animal fat
• Waste oil
• Mixed fraction from municipal wastes
• Scrap wood

35. MACHINERY
• Machinery is imported
• Various components are also imported as the need arises.
• R&D when it comes to setting up or manufacturing plant in
Pakistan is absent. Lucky cement has no R&D department
and considers R&D to be useful only when product
innovation is possible.
• As cement is a standard product with almost no innovation
possible , standardized machinery and equipment are used
to produce it - Mentality of the people in cement industry

36. LABOUR
• Cheap labor is available, low labor cost is an advantage
• Skilled, Unskilled ratio is 2:3 as determined by the research
• More than 150,000 people are employed directly or
indirectly by the industry
• Lucky Cement Directly employees 5000 people
• Engineers from NED and NUST

37. LABOUR
• Extensive labor training is done. Lucky Cement, Dandot
Cement Limited hold training sessions for employees.
• Foreign experts are called in to provide training
• Technical staff is needed to operate the complex plant
machinery
Skilled Unskilled
• Electrical Engineers • Packaging
• Mechanical Engineers (Kiln’s • Loading & Unloading
Operators, Crushers) • Tanportation to Dealers & Plants
• Chemical and Civil Engineers • Trolley men, vendors
• Masters in Busniess • Helpers
Administration

38. Technology
• Until 1970- firms were based on Wet Process/Semi dry
technology. However as it was more expensive and required
greater amount of energy source.
• After 1980- Dry Process. Presently, 85% of installed capacity
is based on the dry process.
• Lucky Cement using computerized control system advanced
state of the art sophisticated equipment like Distributed
Controllers, PLCs and online X-ray Analyzers- Quality Control
• Maple Leaf Cement through its R&D has reduced the
emission of NO from 4.5 Kg/ton to 1.5 Kg/ton in order to
reduce the pollutants emitted.

39. DEMAND CONDITIONS

40. Factors That Drive Local
Demand
• Increase in Population
• Urbanization
• Availability of credit / decrease in
interest rates
• Political Stability
• Economic Stability (Cyclical)
• Seasonal Variations

41. Major Sectors of Local
Demand
• The per capita consumption is 145
kg.
• The local demand consists of
– Housing sector – 40% of demand
– Private construction sector
– Government Development
Expenditures – Dams, roads etc

42. LOCAL DEMAND
• Capacity utilization – 75% …. QUOTA SYSTEM
• Local consumption = 18.06 million tons for
the first ten months….. 6.76% lower than
09/10
• Reasons
– Minimal government expenditure
– Floods
– Economic slowdown

43. EXPORT DEMAND
July 2010 to April 2011 7.6 million tons
July 2009 to April 2010 8.8 million tons
Decline of 15%

44. EXPORT DEMAND
• The major countries affecting Pakistani
exports are
– Afghanistan
– China
– India
– African Countries
– Saudi Arabia
– Iran

45. China
• Huge competition for Pakistan
• Current production = 1.7 billion tons
• Excess = 300 million tons
• Chinese exported $160 million worth
cement in first quarter of FY11
• Demand in China is also expected to
fall due to property tightening
measure by the govt.

46. Saudi Arab
• Restrictions on exporting
removed
• Cost of production lower due to
low oil prices
• Paki cement companies face
high competition with prices
charged by SA

47. IRAN
• During the period March-Jan 2011 Iran has
exported 7.424 million tons of cement as
compared with Pakistan’s exports of 7.656
million tons.
• Iran’s exports have increased by 61% while
Pakistan’s exports have declined by 13%.
• 55 cement plants in Iran. Pakistan has only
27.

48. SUPPLY GLUT ALL OVER
• There is decrease in international demand
and a supply glut in all cement producing
nations like ourselves
• A cold war brewing between cement makers
to utilize their excess capacity
• FOB prices hauled lower
• Average FOB price = $ 52/ Ton
• However Lucky said $58/ton

49. MAJOR EMERGING AND
EXISTING MARKETS

50. African Nations
• High cement demand due to
– Strong GDP growth
– Huge Governmental Infrastructure
Projects
– Energy resource exploration
– Growing middle class population
• Many Pakistani companies targeting this
region
• TANZANIA – 10% demand met by Pakistan)
• African cement manufacturers lobbying to
impose 35% import duty

51. UAE
• Currently 40 Million tons capacity and
demand only 14 Million tons.
• Higher demand in 2008 encouraged
construction of new plants.
• Since demand has fallen , Pakistan’s exports
to UAE have fallen drastically.

52. Afghanistan
• Biggest importer from Pakistan
• Massive reconstruction in
Afghanistan
2008-2009 $150 million
2009-2010 $200 million
2010-2011 (First six $110 million
months)
• Increase of 23%

53. Afghanistan
ISSUES
• Transit fee doubled
–From Rs. 9000 to Rs. 18,000
• ‘Gumrak’ issue
• APCMA asks to introduce
Supervised Clearance System
again

54. NEW DESTINATIONS
• IRAQ – demand double of
production
• SIRILANKA – war torn

55. India
2008-2009 $35 million
2009-2010 $40 million
2010-2011 (First six $12 million
months)
• Sales through land to India fell by 36%
• Sales via sea to India fell by 17.27%
• Clinker exports declined by 34.57%

56. Reasons
• Delay of renewal of licenses by Bureau of
Indian Standards (BIS)
– Between 2007-08 22 companies were granted
licenses
– Licenses expired – applications were pending
since 6 months
– Recently approved
• Refusal of Indian railway authorities to
interchange loaded wagons
• They want special BIS printing which cost
additional Rs. 400 per ton

57. • Does not allow exports through Wagah
Border by road.
• Refuse to accept certificates by Pakistan
Quality Control – They want third party
• Recent trade fair in New Dehli – Our firms got
smaller stalls in far away corners
• Visas delayed and rejected without notifying
reasons

58. MFN STATUS
• India granted the MFN status to us in 1996
• But they don’t treat us like it
• We treat them like MFN but have not granted the status yet
• Trade heavily skewed towards India
• India exports to Pak = $ 2 billion
• Pak exports to India = $ 400 million
• On April 29th a Joint Working Group was established with the
representatives of the two countries met to reduce non-
tariff barriers
• Also Pakistan agreed to grant India the MFN status in April
• Pakistani Cement in India costs Indian Rs 30 less than Indian
cement – Thus our cement good for India !!

60. Governmental Role
• 80% plants in the north
– Those who could not export – loss of
10 billion last year
– Those who could – 4 billion profit
• High inland freight costs for
northerners
• Govt promised to provide 35%
inland freight subsidy to export by
sea – Not paid yet… 8 month lapse

61. Governmental Role
• Heavy tax structure
– Federal excise duty – Rs 700/ton
– Special excise duty – 2.5% (recent
inc of 1%)
– General sales tax – 17%
– 5% on utilities
• 30% of total cost = TAXXXXX =
Rs87/bag
• APCMA demanded not to be
charged so much tax!

62. …THUS TAX EVASION
• Miss declaration of production
• Jhelum-based unit
– Tax payed on 2000tons
– Real production = 100,000 tons
– Profit of Rs. 200 million in 1 month

63. High Cost Of Production
• Recently 4 units closed !!!
• Rs 340- Rs 355 per bag
• Manufacturers cant pass on high
cost to consumers due to
1. Surplus Capacity
2. Increased Competition

64. RECOMMENDATIONS
• Coal fired power plants should be imported
from China like ZEAL PAK
• Import sulphur washing plants from Europe.
• Government should fulfill its promise of
giving subsidies.
• Measures should be taken to prevent future
influence of the cartel.
• Encourage Research and Development – Cost
saving.

65. RECOMMENDATIONS
• Reduce Indirect Taxes, which are one of the
highest in the world.
• Efforts to maintain trading through Wagah
Border and solve tariff problems with
Afghanistan