35110106

Industry

Published by: Mirza Rohail B http://economicpakistan. wordpress. com/2008/02/12/cement-industry/ History , Introduction Growth of cement market is appropriately considered a barometer for economic activity.

In 1947, Pakistan acquired inherited 4 cement crops with a total capacity of 0. a few million loads. Some expansion took place in 1956-66 yet could not keep pace with the financial development as well as the country was required to resort to imports of cement in 1976-77 and continuing to do so right up until 1994-95. The industry was privatized in 1990 which in turn led to preparing of new plants.

Although a great oligopoly industry, there exists intense competition among members of the cartel today. The sector comprises of twenty nine firms (19 units in the north and 10 units in the south), with the set up production ability of 44. 09 mil tons. The north with installed creation capacity of 35. 18 million loads (80 percent) while the southern region with mounted production potential of almost 8. 89 million tons (20 percent), contend for the domestic industry of over 19 , 000, 000 tons. There are four international companies, 3 armed forces firms and sixteen private corporations listed in the stock exchanges.

The sector is broken into two wide-ranging regions, the northern place and the the southern area of region. The northern area has around 80 percent share in total concrete dispatches even though the units operating out of the the southern part of region adds 20 percent towards the annual bare cement sales. Bare cement industry should indeed be a highly significant segment of business sector that plays a pivotal function in the socio-economic development. Since cement is actually a specialized item, requiring complex infrastructure and production position. Mostly from the cement sectors in Pakistan are located near/within mountainous locations that are abundant with clay, flat iron and mineral capacity.

Concrete industries in Pakistan are currently operating at their optimum capacity as a result of boom in commercial and industrial structure within Pakistan. The cement sector can be contributing over Rs 40 billion towards the national armory in the form of taxation. Cement industry is also providing the nation by providing job possibilities and at present more than a hundred and fifty, 000 individuals are employed indirectly by the market. The market had exported 7. 716 million tons cement during the year 2007-08 and had earned $450 million, whilst is supposed to export eleven. 0 mil tons of bare cement during 2008-09 and gain approximately $700 million. Fiscal Performance 2008-09 Business Recorder reported that Pakistan’s concrete exports experienced a healthy regarding 65%, to 6 , 000, 000 tons during 7 weeks of the current fiscal year mainly because of rise in foreign demand. The exports may reach to 11 million tonnes and earn around $ seven hundred million during 2008-09. The statistics of All Pakistan Cement Producers Association likewise showed that cement exports had installed to over 6 million plenty in six months in comparison with 3. 2 million a great deal of same amount of last money year, depicting an increase of 2. 38 mil tons. Bare cement exports during January 2009 went up by 30% to 0. 81 million tons as compared with 0. 623 million plenty in January 2008. However , slow building activities in the area during the period badly disappointed domestic sale for cement, which depicted drop of 15%, to 10. 77 million tons as compared with 12. fifty nine million plenty of last money year. In MoM basis, local dispatches of bare cement during January 2009 confirmed a decrease of 8%, to 1. 51 million loads from 1 . 65 million tons of January 2008.

General dispatches, which include export and local sales, come to 16. seventy seven million plenty during This summer to January of 2008-09 as against 16. twenty million a great deal of last financial year, depicting an increase of 3%. By September 2009, after seeing substantial growth in all three quarters of fiscal year (FY) 2008-09, cement sector deducted the fourth quarter with a handsome growth of 1, 492 percent on annual basis, All Pakistan Cement Manufacturers Association’s report revealed on 29th September 2009. Higher retention prices (up 59 percent) and excessive rupee centered export revenue amid rupee depreciation (20 percent) drove profits up north.

However , this progress is amplified, as FY2007-08 was a great abnormally low profit period for the sector. Moreover, the functionality is skewed towards huge players with export potential as profitable companies in both years posted enhance of just 109 percent, said expert at JS Research Atif Zafar. This individual said that total profitability of companies in FY09 was at Rs 6. two billion or perhaps $78. 2 million when compared with Rs 386 million or perhaps $6. two million depicting a massive growth of 1, 492 percent. Companies with income in the two years submitted 109 percent earnings improvement.

Though total dispatches were down a couple of percent, net sales grew by fifty five percent to Rs info. 4 billion or $1. 3 billion on the back side of higher net retention prices (up fifty nine percent) and improved export based earnings. Cost of sales/tonne also flower by 33 percent about yearly basis amid larger realised coal prices and inflationary pressures, the expert maintained. Production Capacity In Pakistan, you will find 29 cement manufacturers which might be playing a huge role in the accumulating the country’s economy and contribution toward growth and prosperity.

Following 2002-3, almost all of the cement manufacturers expanded their particular operations, and increased creation. This sector has spent about $1. 5 billion dollars in ability expansion during the last six years. The functioning capacity of cement 20 years ago was six million plenty, which elevated to become 18 million plenty by 2005-06 and by end of 2007 rose to above thirty seven million shades, and the production cpapacity is forty-four. 07 million tonnes. Cement production capacity in the north is thirty five. 18 , 000, 000 tons (80 percent) while in the south it is just 8. fifth 89 million tons (20 percent).

The concrete manufacturers in 2007-08 added above 8 million tons to the ability and the total production was expected to surpass 45 , 000, 000 tons right at the end of 2010. It may result in a supply glut of seven million tons in 2009 and 2010. Actual Cement Production (in million tons) According to Government Board of Expenditure, 2001-02 ” 9. 83 2002-03 ” 10. 85 2003-04 ” 12. eighty six 2004-05 ” 16. 2009 2005-06 ” 18. 48 2006-07 ” 22. 73 2007-08 ” 26. 75 2008-09 ” 20. twenty eight Exports , International Marketplaces The bare cement industry of Pakistan entered the foreign trade markets a few years back, and has established the reputation as being a good quality merchandise.

Deregulation following accession of Pakistan to WTO is expected to open the windowpane of competition from less expensive markets. The recent acquisition of Chakwal Bare cement by a great Egyptian large, Orascom might be a beginning of such an entrance in Pakistan by multinationals. New paths for export of concrete are opening up for the indigenous sector as Ceylon (veraltet) has recently shown interest to import 30, 000 tons cement via Pakistan monthly. If the industry is able to take advantage the opportunity presented, it may secure a significant talk about of Sri Lanka market simply by supplying 360, 000 a great deal of cement yearly.

In 3 years ago, 130, 000 tons bare cement was released to India. In 2007, the exports to Afghanistan, UAE and Iraq handled 2 . 13 million lots. At present, the economies of major countries are facing recession, but Pakistan’s bare cement sector is still maintaining a wholesome growth. Cement export to India has recently slowed following imposition of duty by Indian authorities. Pricing An additional problem faced earlier by Industry was the high taxation. The general florida sales tax (GST) was 186% higher than India. The impact of this duty and work structure resulted in almost forty percent increase in the price of a bare cement bag (50 Kg).

A bag in India previous cost Rs. 160 as compared with Rs. 230 in Pakistan. In the spending budget of 2003-04, a duty lower of 25% was acceptable to the bare cement sector with assurance in the cartel to pass on this benefit to the consumers. In 2006, the price of a handbag went approximately Rs. 430 however in 2007 it has stabilized at Rs. 315 every bag. In mid 2008, cement rates stabilized additional at Rs. 220 every bag. The us government has lowered central excise duty (CED) on concrete in the plan for 2007-08 in order to boost structure activity. Normal industry expense of cement bag/50Kg = Rs. 193

Normal industry price of bare cement bag/50Kg sama dengan Rs. 235 Domestic Demand Local require in the country for the year 2008-09 is likely to be around 20 million loads. Domestic require is expected to grow at 13% Potential growth rate (CAGR) during next five years. Specific factors will likely affect the regarding cement sector as well. They are as follows: Good GDP expansion O Larger GDP growth has impact on cement demand. U Cement require growth price was twice the GDP growth charge in last three years. Casing sector development O Enclosure projects consume roughly 40% of bare cement demand.

O Low interest rates, content 9/11 remittances’ inflow, and real estate rate of growth have helped housing sector growth. Authorities Development Bills O Federal government development bills count for one third of total cement consumption. O Increase in PSDP ” via Rs. 85 bn in 1999 to Rs. 520 bn in 3 years ago. O System development in a region sets off private advancement projects having even positive impact on cement demand. Earthquake Rehabilitation Um Earthquake deficits of March 8th happen to be estimated at $ 5. 2bn To Reconstruction function will improve construction material demand

O Reconstruction operate is supposed to generate bare cement demand of 4mn lots over next 3-4 years Announcement of large Dams To Construction of four large public works will create demand of three. 7mn plenty. Bhasha Daimer Dam, Munda Dam, Akhori Dam and Neelum Jhelum. Per Capita Cement Intake Pakistan at the moment has a every capita consumption of 131kg of cement, which is comparable to that pertaining to India at 135kg per capita nevertheless substantially under the World Average 270kg as well as the regional typical of over 400kg for peers in Asia and over 600kg in the centre East.

Concrete demand continued to be stagnated during 90’s due to lack of expansion activities. In 1997, every capita consumption was 73 kg in both Pakistan and India. By 2005-06, consumption in India went up to become 121 kg/capita while ours increased to 117 kg/capita. A comparison of few countries in 2005: Bangladesh 50 kg/capita Pakistan 117 kg/capita India 115 kg/capita USA 375 kg/capita Iran 470 kg/capita Malaysia 530 kg/capita EU 560 kg/capita China 625 kg/capita

UAE 1095 kg/capita Challenges to Cement Industry The cost and exports may be affected because of weakness of the US dollars causing coal, electricity charges and shipping prices, comprising 65 to 70 percent off the cost. The PSDP allocation intended for 2009 has become cut by Rs seventy five billion and feared even more cuts could curtail concrete demand. Key capacities of nations like India and Iran are expected to come online by FY10 and onwards which are likely to convert these countries from reliant importers to potential exporters.

Moreover, this current growing trend is usually expected to end up being short-lived due to higher interest rates and inflationary concerns are likely to make it disadvantageous intended for investors to the construction sector. In addition to this, to regulate real estate rates the government can be considering awe-inspiring a taxes on it. Key General Rehmat Khan, Chairman of All Pakistan Cement Producers Association (APCMA), told Organization Recorder, “cement industry gets Rs 24 per lot as day time dutydrawback pertaining to export of cement which usually needs to be modified.

In view of today’s calculation to get duty disadvantage, which calculates to Rs 130 every ton, he proposed that duty downside be elevated to Rs 130 every ton, rather than Rs twenty-four per ton.  Talking about taxation upon cement, he said that bare cement dispatches will be subject to repayment of government excise duty @ Rs 900 per ton, standard sales tax snabel-a 16 percent, special bar duty @ 1 percent, tagging fee snabel-a 0. 1% of ex-factory price, besides provincial responsibilities and taxes. These income taxes come to around Rs ninety six per handbag which is the greatest in the world. Concrete, it appears, has been treated as a luxury item for the purpose of income taxes and duties.

He proposed that the authorities should lessen excise responsibility by Rs 450 per ton in the forthcoming spending budget while the outstanding half must be eliminated entirely along with the unique excise responsibility. Besides this kind of, sales tax should not be charged about excise work paid worth. He as well proposed withdrawal of traditions duty upon Pet Cola and remove it from bad list pertaining to import coming from India because cement market imports Coal and Pet Coke because fuel to get production and customs duty on brought in coal can be zero while on Pet Cola it is recharged @ 5 percent. (c) MONETARY PAKISTAN