Cement Industry[1]

8/8/2019 Cement Industry[1]

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Analysis of Pakistani Industries

Cement Industry Of Pakistan



Importance

Cement indicates urbanization.

The demand for cement is a good

indicator of the economic developmentof a country.

An increase in productivity increasesGDP, which improves the standard of

living and this results in improved

infrastructure.



R aw materials are in abundant quantity inPakistan and can last for approximately 100

years.

The technology for operating the cement plant

does not require highly technical labor hence itsuits the skill level of our labor



Cement industry employs approximately

90000 employees.

It is a big source of government revenue as it is

subjected to highest tax rates.



Direct and indirect

taxes

Rs 17.50 billion

Value of fixed assetsdeployed

Rs 66.21 billion

Loans from financial

institutions

Rs 41.53 billion

Shareholders equity Rs 26.67 billion

Employment (direct

and indirect)

90000 approximately

Contribution To National Economy



% Share In World¶s Production

COUNTRY % share in world¶s

production

China 37.2 %

India 5.8 %

Indonesia 1.86 %

Turkey 1.80 %

Iran 1.63 %

Thailand 1.63 %

Pakistan 0.66 %



History

y Pakistan had only 5 plants of cement out of which 4 were in West Pakistan with a total capacity of

0.5 million tones per annum, with a demand of 1million tones per annum.

Under the industrialization process, the

government put up 2 cement plants. Zeal Pak with capacity of 240,000 tones per annum, and MapleLeaf with a capacity of 100,000 tones per annum



The demand for industrialization was not

met in 1960s, therefore the capacity wasencouraged and private sector was allowed

to enter to an extent that there was a surplus

and cement was exported.

In 1970, after the nationalization under

Bhutto, the private sector moved out

because setting up a cement plant required 3

to 4 billion for 1 million tones per annum

capacity, thus supply decreased and we

started importing



Under Zia¶s regime in 1980, the private sector was encouraged which led to an excess supplyin 1980-2000.

The government restricted capacity utilizationto 60% and fixed prices as a result of excesssupply.



Products

The world has 20 different types of cement

but in Pakistan demand exists for the

following four types

Ordinary Portland cement

Slag cement

White cement

Sulphate resistant cement



Portland cement

Portland cement made by finely pulverizing

the clinker produced by calcining to incipient

fusion a mixture of argillaceous and calcareous

materials.

Portland cement is the fine gray powder that is

an active ingredient in concrete.



History

First cements was produced by early Greeks

and

R omans from volcanic ash mixed with

slaked lime This art was lost during the Middle Ages

Portland cement developed in England by

bricklayer Joseph Aspdin in early 1800¶s



It Called ³Portland´ because concrete madewith resembled natural stone from the Isle of Portland

First rotary kiln designed to produce Portland

cement patented in 1885 by Frederick R ansome

First economical U.S. kilns developed byAtlas



Cement Company in 1895

Thomas A. Edison first developed long kilns

(150 feet compared to 60 to 80 feet)



Portland cement

limestone+ shale \clay +heat=clinker

Material temperatures exceed 2700 degrees

Fahrenheit Pulverized clinker+ gypsum= Portland cement

Cement powder is so fine that one pound

contains 15

0 billion grains



Basic chemical components of Portlandcement

-Calcium-Silicon

-Aluminum

-ironTypical raw materials required

Lime stone

Sand

Shale clay

Iron ore



Calcareous

component

Lime stone

Marly lime stone

Chalk

Coral lime stone

Marble

Lime sand

Shell deposits Shell sludge

Argillaceous

components

Clay

Shale

Calcareous marl

Marl

Marly clay

Tuff, ash

Phyllite, slate glass



Cement Process

Wet process easiest to control chemistry & better for moist raw materials

Wet process high fuel requirements - fuel needed toevaporate 30+% slurry water

Dry process kilns less fuel requirements

Preheater/precalciners further enhance fuel

efficiency & allow for high production rates



There are three processes of cementmanufacturing.

1.Wet process -The intermediate product isclinker in wet process and it is fed in slushyform in the kiln. For heating it a high temperature is required. In wet processwater requirement is high and alsodisposing this water is difficult



Concrete owes its strength and

durability to one essentialingredient -Portland Cement



2.Semi process: Semi wet requires a lot of maintenance during the process that is why itis not extensively used in Pakistan

3. Dry process: In dry process it is placed in powdered form and the use of energy is low.85% of cement unit of Pakistan use the dry

process.



The Cement Production Process

The three broad processes of cement

production are

1. R aw milling ± the preparation of kiln feed

2. Calcining and burning-the conversion process that takes place within the cemnt

kiln

3. Finish milling- the grinding of clinker to produce cement.



Empirical research

Attock Cement

Dewan Cement Ltd

Dewan Hattar Cement Ltd

Javedan Cement

Al-Abbas

Dadabhoy

Thatta Cement

Galadari Cement



Factor conditions

R aw materials

Machinery

Labor

R esearch and development

PackagingInfrastructure

Energy sources



R aw materials

Main constituents of cement include:

Lime

Alumina

Iron

Magnesia



These constituents are obtained from

following raw materials:

Lime stoneClay

Overburden

ShaleGypsum

Iron ore

Bauxite

Slag

All the raw materials are found in abundance

in Pakistan



The mining costs for these deposits come to only

about R s. 100 per tonne or approximately 6% of total manufacturing cost.

Gray cement manufacture consists of about 73%

limestone and 25% clay.

For the production of sulphate resistant cement

sand and iron ore are also used.



The amount of gypsum that is added to the

clinker may be taken at 4%.

For the production of slag cement, blast furnace

slag is also used



Machinery

The cement industry is a capital-intensive

industry

Most of the machinery used is imported.

There is a heavy reliance on the engineering

sector of the economy.

There is no up gradation of machinery.

Only repair and maintenance is done.



Most of the companies have a foreigncollaboration with LVT; a Hong Kong based

indenting firm.



Countries From Which Machinery isImported

12.50%

37.50%37.50%

12.50%

West Eur, US,

ChinaWest Eur, China

Western Europe

US, Western

Europe



There are no cement training or vocational

institutes in the country.

Training is given to the employees mostly on

the job.

Labor



However, some companies have a proper

in-house training.

Managers should have a masters degree

Supervisors and technical engineersshould have a diploma or graduation in

related field.

Non-managerial and non-technical labors

require no qualification to intermediate.



Compos on Of Labor For ce

17 50%

20 00%62 50%

manage a

e hn a

non e h/ mng



Training Programs

15%

57%

28%

none

1 to 2

more thn 4



R esearch And Development

R&D Department

25%

75%

no

yes



R&D As a % of Total Cost

87.50%

12.50%

0-5 %

11-15%



Packaging

Cement is sold in four ply sacks.

Cost of paper sacks has gone up by almost

90%.



Infrastructure

Transportation

Utilities

Seaports



Transportation

Cement is sold at the plant.

Therefore, transportation cost is not incurred.

Cement plants are located near the quarries.



Transportation cost of cement is

Rs.250 ton for every 100Km.



SeaportsAnd Highways

There are only two international sea ports in

Pakistan, namely Karachi and Bin Qasim.

The sea ports are managed very inefficiently

There is no cement bulk handling facility at the

ports.



Energy sources

Furnace oil

Coal

Gas



Furnace oil

Furnace oil consumption per ton of output 85 KgCost of furnace oil per ton of cement

produced

R s.1226.5

Coal

Coal consumed per ton of output 135 Kg

Average price of ready to use coal per ton R s.530.6

Power cost of coal firing plant per ton of

clinker

R s.22

Total cost of using coal per ton of output R s.552.6

Saving per ton R s.674.0

Saving per bag R s.33.7



energy sources

38%

12.50%25%

12.50%12.50%

coal, gas, fur. Oil

coal, gas

coal,furnace oil

gas,furnace oil

furnaceoil



Energy Source

43%

57%

In house

Wapda / Kesc



Energy cost as a % of total cost

12.50%

87.50%

31-40%

above 40%



Demand conditions

Local

International demand



Local demand

Seasonal impact

Autumn season generally witness higher

cement demand

In winter the demand for cement reduces.



Public projects

Kalabagh-150,000 million tons per annum

Bhasha Dam 150,000 million tons per annum

Gwadar Port 30,000 million tons per annum Mass Transit Program 50,000 million tons per

annum

Canal linings



Low interest rates by commercial banks

Foreign remittances

Earthquake: Approximately 1mn tons of

cement would be required to construct

400,000t of houses for 3 years (or 333k tpa)



Source: KASB Bank R eport (Jan 2006)



Supply

Nearly all the cement plants have expanded

their operations and increased their production

capacity.

But if there is a slump in demand it would

result in huge losses for the industry

To meet this challenge the cement

manufacturers are producing to meet the day to

day demand.



Current Capacity

0

1000

2000

3000

4000

j a v e

d a n

a l - a b b

a s

g a l a d

a r i

a t t o

c k

d e w a

n

d e w a

n h t

t h a t t a

d a d a b h

o y

company name

c a p a c i t y

i n t

p d



Capacity Utilization

57%

5%

%9 %

9 %

71-80 %



Exp i Pl

0%

20%

40%

60%

80%

100%

yes n



International demand

Ex port to Afghanistan- Demand for cement willincrease to 5 million tons.

Export to Dubai

Export to Iraq via. Dubai

Export to Sri Lanka, Malaysia and Turkey is notviable due to higher transportation cost.



EXPORTS

25%

62.50%

12.50%

Afghanistan, Iraq,

Gulf Afghanistan, Iraq

Afghanistan only



per capita consumption (Kg)

taiw an

malaysia

thailand

turkey

china

syria

iran

mexico

phillipines

vietnam

turkmenistan

indonesia

srilanka

india

pakistan



R ecent Price Upsurge

8th October earthquake.

Decrease in construction activity due to

unavailability of labor.

R eturn of labor force in February.

Sudden upsurge in construction activity.

Increase in price to R s.385

/bag. However, at present the demand has reduced to

due to the subsidies on import.



Structure

The cement industry is divided into:

Northern

Southern



There are twenty-four plants operating in the

country.

Four are in the public sector and the remaining

in the Pvt. Sector.

Sindh has 7 plants, Punjab has eight, NWFPhas six and Balochistan has one.



A break up of the production and sales of two

zones reveals that the total sales ratio of the

northern zone to the Southern Zone currentlystands at 73:27

Total sales in the northern region is 10.74

million tons.

The exports in this region contribute 98

percent of the total industry exports mainly

due to location advantage



The northern zone¶s export contribution is of 1.07

million tons

The total Northern region sales contribute to 79

percent of total industry sales coupled with lowtransportation costs.



SALES IN NORTHERN ZONE IN 2004-05

AskariCement (Wah) exports 60,025 tons

AskariCement (NZP) exports 40,390 tonsBest Way exports 246,289 tons

Cherat exports 191,383 tons

Dandot exports ---

D.G. Khan exports 159,870 tons 2004

Fauji exports 113,314 tons 2004

Fecto exports 31,795 tons 2004

Kohat exports 111,352 tons 2004Lucky exports 117,235 tons 2004

Pioneer exports 3,100 tons 2004

Saadi exports 1,280 tons 2004



SALES IN SO THERN ZONE IN 2004-05

Attock Cement 603,975 tons

Dadabhoy 349,688 tons

Essa 260,171 tons

Javedan 450,442 tons

Pakland 509,645 tons

Pakistan Slag 60,100 tons

Thatta 394,644 tonsZeal Pak 261,078 tons



R ivalry

R ivalry exists in three forms:

Proximity

Product quality Product variety



JavedanZeal PakDadabhoy

Dewan Al- Abbas

DG KhanLucky Attock

Low High

Product Quality Image

Price

high

low



DG KhanLucky

Zeal PakJavedanDadabhoy

Al- Abbas Attock

Dewan

Region

North

South

low high

Geographical proximity

to Al- Abbas



PakistanSlag

Al- AbbasZeal PakDadabhoy

Dewan

Javedan Attock

Thatta

R egion

North

South

Slag

only

SR C

Slag

OPC

SR C



International rivalry

Pakistan¶s major competitors are China, Iran

and India

Iranian cement prices were much lower, i.e.,

US $32 per tonne

Pakistani price of US $70 per tonne.

Pakistani exporters have now become more

competitive and are exporting better quality

cement at US $30 per tonne



Iran¶s domestic demand for cement ahs

increased.

Competitive edge over Iran in exporting to

Northern Afghanistan.

Prospects of exporting to UAE, but new

plants are coming up there with added

facilities.

T Of P ki t I I di



Type Of

Cement

Pakistan

Strength in

Newton/

Iran India

Ordinary

Portland

34.5 81.5 33

High strength Portland

41 NA

R apid

hardening

Portland

46 Na NA

Sulphate

resistant

34 27 33

White cement 27.6 31.5 30

Blast Furnace 34 NA 33



Strategy

All Pakistan Cement Manufaturer¶sAssociation (APCMA), sets prices for the

cement industry

Though in our analysis all the cement

companies refused the presence of APCMA.

Profitability depends upon the economies of

scales, locational advantage and proximity to

markets.



R educing the cost of sales and financialcharges are the core strategies.

They have restructured their foreign loans

with cheap local credits



R elated And Supporting Industries

Mining sector

Transportation industry

Packaging industry Power and energy sector

Construction sector



At present a lot of companies have gone into backward and forward integration.



Chance

The war in Afghanistan and Iraq have induced

international demand.

Increase in Iran¶s domestic market for cement.

Shortage of cement in Gulf.



R ole Of Government

At present, the Govt. has removed import

subsidies and levied import subsidies.

The central excise duty on cement is

R s.750/ton.

The industry tax rate is 15%.



Issues

R emoval of export subsidies

Import subsidies

Increase in price of coal in the future Shortage



R ecommendations

Masonry cement

Improving import facilities

Tax reduction instead of import subsidies a better option

Lower energy consumption.



Conclusion

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Cement Industry[1]

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