Sri Lanka back on track for growth?

Sri Lanka back on track for growth?
21 January 2022

This Week, Tokyo Cement Co (Lanka) laid the first foundation stone for its 1Mta modernisation project at its Trincomalee factory, commissioning in early 2023. ICR reviews local producers' determination to overcome cement shortages, the ramping up of cement and raw material import infrastructure, and plans for new capex projects.

Tokyo Cement Co (Lanka)'s (TCL) investments follow the cement shortages witnessed in the 2H2021, which were mainly due to pandemic related travel restrictions hindering collections, as well as a lack of bulk carriers and the continuance of the government Maximum Retail Price (MRP), according to TCL.

In addition, the local industry was exposed to significant cost inflation: "The fuel price increase and unavailability of vessels escalated inbound freight rates by over 300 per cent within a very short period," explained TCL in a statement. Moreover, "The value of the Sri Lankan Rupee depreciated when compared to the same period last year, compounding upon sharp price hikes of imported raw materials including clinker and paper for bags," TCL added.

In December, TCL managed to double its cement distribution from 30,000t to 60,000t on the back of its completed Colombo Port Terminal expansion project, helping to end the cement shortage, while the MRP was removed on a 50kg bag of cement and a new selling price of LKR1098/bag was quickly announced by TCL, bring its price down from LKR1275/bag.

Rival INSEE Cement Sri Lanka (Siam City Cement Group) also worked hard to reduce cement shortages in the 2H21. INSEE Cement says it operated at maximum production capacity and optimised its distribution channels. It logged a record-high 700,000t production output during the 3Q21, according to the Colombo Post newspaper. "We continued to fully support government regulations and industrial policies to first stabilise the market, and were able to deploy our island-wide distribution and dealership network to ensure an uninterrupted supply across the island," said Gustavo Navarro, CEO at INSEE Cement Sri Lanka. INSEE Cement Lanka also introduced two new import ships during this period of shortages.

Domestic cement demand
Cement demand in Sri Lanka is trending at around 6-6.5Mta, with growth expected to have recovered modestly in 2021 after a two per cent decline in 2020 to 6.2Mt, according to Global Cement Report 14th Edition. Domestic production reached 3.94Mt in 2020, while cement imports contracted by 23 per cent to 2.23Mt.

Chinese investment is rapidly flowing into the country for construction projects in Colombo, often at the expense of Indian contractors. Notable infrastructure projects for road development include the Southern Expressway connecting Colombo and Matara in the deep South and the Airport/Katunayake Expressway.

The increasing importance of imports
The tight supply situation has encouraged local cement producers to accelerate import infrastructure plans. TCL has been supplementing local production with imported finished cement until additional capacity comes online. Imports remain a valuable part of the business and the Colombo Port Terminal has recently been expanded by a LKR2.5bn (US$12.35m) investment, which will enable TCL to handle 0.45Mta of cement through the terminal. The facility has a newly commissioned storage, bagging and distribution capacity for distribution to the western province. Storage includes three 6000t cement silos and increases the company’s import operation from 0.6Mta to more than 1Mta, supplementing its 3Mta domestic production.

Securing regular raw material imports have also been a key aspect behind INSEE Cement Lanka's strategy. It has seen the Hambantota International Port (HIP) increase its bulk cargo handling capacity by 100 per cent in 2021. Record levels of bulk cargo have been unloaded at the port when INSEE Cement unloaded a consignment of gypsum last year at 24,000tpd. Thusith Gunawarnasuriya, Director of Procurement & Logistics of INSEE Cement said this was an extraordinary achievement for a Sri Lankan port in terms of speed and efficiency.

Capex additions to come
In December 2021, INSEE Cement also announced plans to increase its grinding capacity at its Ruhunu Cement plant in Galle. The project is aimed at expanding the company's supply to its primary western market as well as to the fast-growing southern market. Commissioning is scheduled for the end of 2023. INSEE Cement currently operates 1.4Mta of cement production at Galle and has a 1.3Mta integrated plant at Puttalam and a 0.8Mt import capacity at the Colombo Cement Terminal.

Investments have also been seen at the Puttalam factory where Cenmetrix has recently completed the installation of an automated weighbridge entrance using RFID technology solutions linked with automated vehicle gate barriers.

The emergence of new arrival Lanwa Sastha Cement (Onyx Group), which begins commercial production this month will heighten competition. The new 3Mta Mirijjawila plant is connected to the HIP via a 2.4km-long conveyor to transport raw material to the plant, so the importance of the HIP in Sri Lanka's raw material supply has been vastly enhanced.

Other Capex projects include a Chinese 1.3Mta Hambantota EZ integrated plant and plans for Chaudhary Group's 1.3Mta plant for its CG Cement Industries Pvt Ltd subsidiary in Mannar.

While supply shortages put local cement producers under pressure at the end of last year, they have come through this test. They are in a stronger position to meet market demands now that import measures are in place and a new competitor has entered the fray.

Published under Cement News