Pakistan's cement producers play the long game

Pakistan's cement producers play the long game
17 March 2023

This week ICR looks at Pakistan's cement sector where new capacity is coming on-stream and cement producers are jostling for increased market share in the north of the country. Meanwhile, the cost of raw materials and fuel has driven cement prices up and stagnant domestic cement demand means that many producers have looked to export markets.

Protecting market share in northern Pakistan is becoming increasingly challenging as cement producers in the region have unleashed a fresh stream of new capacity projects in recent months.

Maple Leaf Cement (Kohinoor Textile Mills Ltd group) became the fourth-largest cement producer in Pakistan this week having raised capacity at its Iskanderabad cement plant by 2.1Mta to 7.9Mta. The company also took its stake in Pioneer Cement Ltd to a 15.08 per cent minority share ownership. The additional investment in Pioneer Cement will further increase Maple Leaf Cement's exposure to the northern markets and is expected to give it a larger voice in key decisions for Pioneer Cement, having increased its share ownership in Pioneer Cement to 34.3m shares. 

Northern capacity increases
Activity in Pakistan's cement sector has been escalating since last year, when Fauji Cement Ltd lined itself up to become the second-largest cement producer in the north of the country with its merger with Askari Cement, and the third-largest producer in the whole country. Fauji Cement is also expanding its capacity at its Nizampur plant in Khyber Pakhtunkhwa and at its Wah plant in Punjab, both former Askari facilities. The Nizampur plant added 2.05Mta of cement capacity in October 2022 at a cost of PKR27bn, while the Wah plant will also add 2.05Mta of cement capacity by the 3Q24. An 8MW waste heat recovery (WHR) plant is also now running at the Nizampur cement plant.

Last month also saw Pakistan's second-largest cement producer, Bestway Cement, open a new 7200tpd clinker line at its Hattar cement plant in northern Pakistan. With this expansion Bestway Cement has taken its overall cement capacity to 15.2Mta. This follows the start-up of the greenfield Milanwali plant in Punjab for Bestway Cement in October 2022 where a 9MW WHR system has also been installed. Bestway is also investing in solar power capacity that will total 111MW across all its facilities by April 2023.

Meanwhile, market leader Lucky Cement commenced operations of its Line 2 at the Pezu plant on 22 December 2022, adding 3.15Mt of cement capacity. This took Lucky Cement's domestic cement capacity to 15.3Mta. It also added a 34MW solar power plant at Pezu before the end of 2022 and is adding a 25.3MW solar power pant at its Karachi cement plant in the 2QFY23-24. 

Domestic cement demand
The rising cost of construction activity has dented cement demand in Pakistan, despite the need for house building following the devastation from the recent floods. Domestic cement demand has stalled as public and private sector spending has shrunk in recent months, while the cost of construction projects has made many of them unviable with rising steel rebar prices of particular concern. The Ministry of Planning, Development and Special Initiatives (PSDP) has a budget of PKR727bn (US$2.58bn) in the current fiscal year, but has only authorised PKR371bn in 7MFY22-23 while actual expenditure has totalled PKR203bn. Therefore, there has been an 18 per cent fall in cement dispatches for the 7MFY22-23. The All Pakistan Cement Manufacturers Association (APCMA) reported that local cement shipments for February 2023 reached 3.59Mt compared to 3.943Mt in February 2022m, a fall of 8.96 per cent.

Cement prices rises
Cement producers have passed on raw material and energy costs by increasing their cement prices. PK Revenue states that cement prices have risen by 67 per cent to PKR1100-1200/bag – approximately US$78-85/t – since June 2021. Inflationary pressures and the cost of coal has triggered cement price rises and the Federal Tax Duty (FED) and sales tax on cement increased prices by a further PKR50/bag in February 2023.

Hopes fade of exports being a saviour
Cement export share of total dispatches slipped by seven per cent at the start of 2023 compared to 13 per cent in 2022, according to Business Recorder. Pakistan's cement exports are more expensive than cement sold by Iranian and Vietnamese cement producers exporting to Pakistan's key export markets of Bangladesh and Afghanistan. Therefore, Pakistan cement exporters are losing market share. More recent trends show a sign of recovery, with February's cement exports totalling 449,940t, up 10.96 per cent from 405,489t registered in February 2022, according to the APCMA.

Pakistan cement producers have been cutting energy costs with renewables and completing WHR projects while adding further cement capacity. Long-term planning is evident among the strategies of the leading cement producers as they seek to ride out the current economic storms and weak demand for their products. Ultimately, they are hoping for an uptick in the domestic construction sector backed by higher government support to support the domestic market, while lower production costs should help restore profitability and international competitiveness.

Published under Cement News