By
NI-W8-MBA-0360
A Thesis
Submitted to
April 2010)
Letter of Acknowledgment
MBA ®
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Letter of Acceptance
Asim Mashkoor
Instructor
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TABLE OF CONTENTS
1.1 Introduction
CEMENT MANUFACTURING
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CHAPTER THEORATICAL LITRATURE REVIEW
02 REGARDING
CEMENT MANUFACTURING
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3.3 Expected Problem of Analysis
Chapter 5 CONCLUSION
5.1 Conclusion
5.2 Bibliography/References
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1.1 INTRODUCTION
The cement industry has grown rapidly since the reform and opening-up.
Now it has become one of the pillar industries for national economy
development in Pakistan. The cement industry in Pakistan has come a
long way since independence when the country had less than half a
million tonnes per annum production capacity. By now it has exceeded 10
million tonnes per annum as a result of establishment of new
manufacturing facilities and expansion by the existing units. Privatization
and effective price decontrol in 1991-92 heralded a new era in which the
industry has reached a level where surplus production after meeting local
demand is expected in 1997.
Pakistan's cement market is divided into two distinct regions, North and
South. The northern region comprises the Punjab, NWFP, Azad Kashmir
and upper parts of Baluchistan, whereas the southern region comprises
the entire province of Sindh and lower parts of Baluchistan. Traditionally,
the southern region has always been surplus in cement production but
with the establishment of more plants in the northern parts of the country
the region has become almost self-sufficient in supply of cement.
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1.2 Scope & objective of Cement Industry
SCOPE:
It may be recalled that in 1947, Pakistan had inherited 4 cement plants
having total installed capacity of 0.5 million tons. These four units at that
time were controlled by India. These inherited cement plants however
were closed when they come to their age after 50 years of their
operations. During early 30 years of independence, five cement units
were established with aggregate capacity of 3.2 million tons of production.
Among these units one was established in Hyderabad Sindh in the public
sector. It was called Zeal Pak and was set up in 1956. Another unit in the
public sector was known as Maple Leaf which was established in the
province of Punjab in the same year. Three units were set up during 1965-
66 in the private sector. These were Javedan in Sindh, Gharibwal and
Mustehkam in the province of Punjab. After nationalization of industries in
early seventies, cement industry remained under the control of
government till late seventies. During this period, growth in demand of
cement was around 7 per cent per annum, whereas new capacities were
not coming up to match with the demand. Consequently, Pakistan had to
start importing cement in 1976-77 and continued to import cement till
1994-95.
After the change in the government in 1977, private sector was allowed to
establish cement plants. As a result of change in policy, seven projects
having capacity of 2.54 million tons were installed in private sector and
simultaneously, State Cement Corporation of Pakistan (SCCP) also brought
in 4 more units with a total capacity of 1.6 million tons. Resultantly, the
total capacity of the cement industry enhanced to the level of 8.5 million
tons by the end of 1990.
Those units came in the public sector were Thatta Cement in Sindh,
(1983), Dandot(Punjab) 1983, Kohat (NWFP) 1983 and D.G.Khan (Punjab)
1985.
The units allowed in the private sector were Cherat (NWFP) 1985, Pakland
(Sindh) 1985, Attock (Balochistan) 1986, Dadabhoy (Sindh) 1988, Essa
(Sindh) 1988, Fecto (Punjab) 1989 and Anwarzeb White Cement (Sindh)
1988.
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According to a report of ICMAP, in the early nineties, the SCCP was the
market leader hence the private sector had to pursue the policies of the
public sector in fixing the prices of cement. With more depreciated plants
in its fold, combined cost of production of plants of SCCP was on lower
side. They had a price mechanism whereby surplus profits of depreciated
plants were allocated to the new plants having higher depreciation cost
and financial changes. The level of cement prices fixed by SCCP therefore
remained on the lower side. With the privatization of cement units after
1990, SCCP lost its control over the supply of cement. At that time there
was an acute shortage of cement in the Northern areas of the country. In
the first half of nineties, Pakistan had to import cement which led to the
increase in cement prices exorbitantly making cement companies to earn
very high profits. This tempted some of the existing units like Cherat,
Pakland, Dadabhoy, Ac Wah, D.G. Khan, Maple Leaf and Kohat to go for
expansion in their plants. Simultaneously, 5 more new projects with
aggregated capacity of 5 million tons came on the stream. As such,
production capacity went up to 16 million tons by the end of 2000. The
five new units in the private sector were Pioneer (Punjab) 1994, Lucky
(NWFP) 1996, Askari (NWFP) 1997, Fauji (Punjab) 1997 and Best Way
(NWFP) 1998.
OBJECTIVE:
Pakistan has been ranked fifth in the list of world’s top cement exporters.
According to the Global Cement Report, China ranks first with 26mn
tonnes in exports, followed by Japan (12mn tones), Thailand and Turkey.
Pakistan overtook Germany by exporting 11mn tonnes of cement during
last fiscal year.
1. To find out the reason behind high rates tax corporative with
neighboring country.
4. To find out that the lower capacity will reduce & fulfill benefit of
Investor.
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1.3 Problems & Opportunities of Cement
Industry
Problems:
With regards to the competition in export markets, we have observed
following behaviors of cement industry in Pakistan:
OPPURTUNITIES:
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companies. The cement sector’s profitability declined by 69 per cent
during the first nine months of FY 2007-08, but Lucky’s profitability
increased by 50 per cent
1. The local cement industry faces high upfront fuel costs. In order to
facilitate their conversion to coal, which is widely available in the
country, the government has given incentives for imported plant
and equipment for coal firing units.
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1.4 RESEARCH METHODOLOGY
Nature of Study
Study Setting
Time Horizon
This study is cross-sectional study and that is gathered just once, our
limited period of time in order to research question.
Once all the data is gathered it will be carefully analyzed and results will
be g=based on the collected data.
Research Method
The secondary data is also available about this study, which is very helpful
for me in preparing this research study.
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CHAPTER #2
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2.1 Cement Information
Non-Hydraulic:
Non-hydraulic cement do not have the ability to set and harden
under water but requires carbon dioxide from air to harden e.g. non-
hydraulic lime and plaster of Paris. Their cementing prosperity
arises from the re absorption of gases that were expelled during
their processing. Their products of hydration are not resistant to
water.
Hydraulic:
Hydraulic cement is defined as cement having the ability to set and
develop strength in air or under water and which are insoluble in
water after they have set. Such cement harden even in the absence
of air and form a solid product which is stable in water and can be
safely used in all structures in contact with water. Hydraulic cement
includes hydraulic limes, Portland cement (both basic and blended),
oil-well cement, white cement, colored cement, high alumna
cement, expensive cement regulated and hydrophobic cement etc.
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source of limestone as about 1.5 tons of limestone is needed to produce
one ton of cement.
Burning
The most critical step in the manufacturing process takes place in the
huge rotary kilns. Raw meal is fed into one end of the kiln, either directly
or via a preheated system, and pulverized coal is burnt at the other end.
The raw meal slowly cascades down the inclined kiln towards the heat and
reaches a temperature of about 1 450 °C in the burning zone where a
process called clinkering occurs. The nodules of clinker drop into coolers
and are taken away by conveyors to the clinker storage silos. The gas
leaving the kiln is cleaned by electrostatic precipitators prior to discharge
into the atmosphere.
Cement milling
The cement mills use steel balls of various sizes to grind the clinker, along
with a small quantity of gypsum to a fine powder, which is then called
cement. Without gypsum, cement would flash set when water is added
and gypsum is therefore required to control setting times. The finished
cement is stored in silos where further blending ensures consistency.
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Quality assurance
Extensive sampling and testing during the manufacturing process ensures
the consistency and quality of the end product. Testing takes place at the
stages of the manufacturing process indicated by the symbol.
Cement dispatch
Cement is dispatched either in bulk or packed in 50 kg bags and
distributed from the factory in rail trucks or road vehicles. The 50kg bags
are either packed directly onto trucks or can be palletized. The pallets can
be covered by a layer of plastic to offer further protection from the
elements.
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This cement has high early strength, its equal to or better
than 3 Days’ strength of OPC. This is achieved by having high
contents of tricalcium silicates in its composition. It is mostly
used in intended to release the framework within 24 hours or
so for subsequent use in the mass production of RCC
elements.
German
B.S. Astm Japanese Pakistan
Standard
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This cement besides its high cost has the disadvantages of the high
heat of hydration and retrogression in strength in time. There have
been some structural failures due to miscalculation of its final
strength after some years of use especially in humid and hot
atmosphere. This cement has however excellent heat registering
qualities and is therefore extensively used in Kilns, boilers and
Furnace linengings. Cement resistant to chemical attack especially
of Sulphate and Organic acids or Soil and active Silica of aggregate.
In this category the following cement can be included:
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No standard exists for this cement in the B.S and P.S.
specifications but under ASTM it is designed as Type II. The
three days minimum strength of OPC, H.S.R.C & H.S.R.C is
1800, 1200 and 1500 PSI respectively under ASTM.
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3. Low Heat of Hydration Cement:
Normal and Rapid Hardening Cement generate lot of heat during the
setting and hardening process so much so that the structure under
concreting can crack. This can occur especially while poring large
messes of concrete in confine spaces like those of Dam and Bridge
pier foundations. In order to avoid this problem cement of low Heat
of hydration have been developed some of which are as listed below:
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cement is slower hardening compared to OPC- its strength
compared to OPC in ASTM being as follows:
This cement besides being a low heat cement has also the
advantage of being medley sulphate resistant although it
cannot replace the highly sulphate resistance cement for
marine piles and foundations. This cement has excellent
resistance to weak organic acids present in the soil and has
also the very desirable quality of protecting reinforcement
steel better than any other cement.
3-C Pozzolana:
Grinding various proportions of natural pozzolana, tars or
volcanic ash with ordinary Portland clinker makes this cement.
It is very good cement in the sense that it has good
workability properties in addition to having low heat and
moderate sulphate resisting properties. It has been used
extensively in the 37KM long causeway connecting Dhahran
with Bahrain in the gulf. So far in Pakistan we have not been
able to locate useful pozzolana deposits, but there is
indication that there may be good deposits of this material in
the overburden of coal deposits of Sindh.
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construction work in the same manner as OPC is used with
excellent results.
If the Tricalcium Aluminates is less than 5 per cent as per ASTM the
cement will not have the capacity to neutralize the stray Chloride
entering into concrete and thus fail toward off the effects of
Chlorides. The properties of slag cement with about 35 percent slag
and 60 per cent Portland Clinker are superior to other cement in this
respect.
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Resisting Cement and each concrete thus made is more workable
and attains higher weather resisting property compared to their
non-air entrained versions.
Integration of sustainability into all its operations now sets the UK cement
industry's agenda. For cements to remain viable, their embodied energy
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and carbon footprint must be reduced over time without jeopardizing
product performance. The increasing availability of cements such as CEM
II types for use in concrete, mortar and grout plus the continued
production of niche Masonry cements for use only in mortar will help the
industry to meet its social and environmental obligations and achieve
necessary economic objectives.
Until now, Portland cement CEM I, of strength classes 42,5 or 52,5, has
been the 'traditional' cement in the UK, although it is the least sustainable
type given its high proportion of cement clinker. Greener, more
sustainable 'non-CEM I' cement solutions incorporating lower proportions
of clinker are now generally available in both bulk supply and packed in
bags. Use of these non-CEM I factory-made cements should become more
and more widespread as prudent specifies include a cement's
sustainability credentials within their specification criteria.
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Portland cement (CEM I):
Formerly known as ordinary Portland cement (OPC), CEM I is
manufactured to conform to British Standard BS EN 197-1. CEM I is the
cement that has been most commonly used throughout the world in civil
engineering and building works. Concretes and mortars made using CEM I
are versatile, durable and forgiving of poor construction practice. In
addition, specific properties can be enhanced by altering either the
cement-making recipe or the size of the particles and so producing
different cements. However, CEM I is the least sustainable type and use of
alternatives is in the ascendancy.
Sulfate-Resisting Cements:
The traditional sulfate-resisting cement used in the UK has been sulfate-
resisting Portland cement (SRPC), conforming to BS 4027. SRPC is a
special type of CEM I cement manufactured to contain a high content of
iron oxide in order to limit the amount of the mineral phase tricalcium
aluminates (C3A) and thereby increase its sulfate resistance. Additionally,
SRPC is normally low alkali cement which benefits concrete in resisting
the alkali silica reaction (ASR). However, it is not the only sulfate-resisting
cement available. Various factory-made composite cements are also
sulfate-resisting including the generally available CEM II/B-V type of
Portland-fly ash cement containing at least 25% of fly ash. Such CEM II/B-
V cements are permitted for use in the same wide-range of sulfate
exposure conditions as is SRPC and are also low in reactive alkalis.
Moreover, SRPC is a type of CEM I cement with a high clinker content, it is
no longer manufactured in the UK and is becoming more difficult to
source. Consequently, greener sulfate-resisting composite cements will
continue to grow in importance.
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aluminates or calcium sulfoaluminate and will tend to both set and harden
(gain strength) very quickly.
White Cement:
Masonry Cement:
Masonry cements, as their name suggests, are designed for use in
masonry mortars for bricklaying, block laying, rendering and plastering
work. They are generally mixtures of Portland cement CEM I plus selected
mineral additions (e.g. limestone or hydrated lime) and chemical
admixtures such as air-entraining plasticizers that form tiny bubbles of air
in the mortar. Masonry cements are used with sands and water to produce
workable, cohesive mortars that are freeze/thaw resistant in the fresh wet
and hardened states.
Expansive Cements:
Concretes, based on most cement types, tend to shrink in volume as they
dry out. Expansive cements are designed to either compensate for this
shrinkage or to lead to an overall increase in volume compared to the
concrete when first placed. They tend to be mixtures of Portland and
calcium sulfoaluminate clinkers, optimized for gypsum content.
Environmental Cements:
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cements in situ, produces a new construction product, for example a
cement-bound soil, a practice/product that in time is set to replace the
time-expired dig and dump philosophy.
Non-Portland Cements:
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Mortar, in its most general and basic form, is referred to as Portland
cement, or Type one cement, and is created by burning limestone with
other materials at 1450 degrees Celsius. The result is then ground to
produce a fine powder, which becomes one of the components of
concrete. However, altering the amounts of the other materials in the
burnt mixture yields several different types of Portland cement, each type
having unique properties and strengths. The type of mortar used in
building a structure should be chosen based on the structure’s purpose
and environment.
The first five distinct types of mortar will first be discussed, as well as their
suggested uses. Type one cement is suitable for most basic construction
uses. Type two is best for structures built in hot environments, or in soil or
water high in sulfate. For projects requiring strength at an early stage,
Type two is ideal because it provides more strength within one week than
the other types. Type four is useful in limiting heat caused by hydration
and is therefore used in massive concrete undertakings, such as dams.
When soil or water is high in chemicals, Type five should be used because
it is manufactured to resist chemical erosion.
The final three types of mortar are known as the air-entrained cements,
because they have microscopic air bubbles added to their mixtures to
increase the durability of the concrete. Air-entrained cements are
especially useful in environments that have repetitive freezes. Types one-
A, two-A, and three-A are similar in properties to types one, two, and
three; the air-entrained cements simply contain air bubbles.
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2. The limestone is combined with clay, ground in a crusher and fed into
the additive silos. Sand, iron and bottom ash are then combined with the
limestone and clay in a carefully controlled mixture which is ground into a
fine powder in a 2000 hp roller mill.
The following raw material is required in the production process which are
frequently available in Pakistan.
1. Lime stone:
This raw material is extracted from the near by mountains. Limestone
has the highest composition in the cement product. 75% to 80% of
the cement constitutes of limestone.
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2. Clay:
Clay is another natural resource. This raw material is also companies
owned. 15% to 20% of cement composition comprises of clay .
3. Iron Ore:
Iron Ore is the only resource that is bought from contractors. Iron Ore
is added in small quantities and it helps to strengthen the cement.
4. Gypsum:
Gypsum acts as a retarding agent. It slows down the hardening
process, which in turn gives the constructor enough time to use it.
Again it is taken from nearest mountains.
5. Furnace oil:
It is used mainly for power generation. Initially the companies was
relying on WAPDA for power supply but now the companies have thier
own electricity generation plant that provides upto 50% of the total
requirements. With the increase of furnace oil prices the companies
are expected to move to adopt coal as a more cost efficient and
environmentally friendly fuel for kiln firing. Today the management is
exploring possibilities of alternative and cheaper fuel such as waste
firing etc.
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• Mechanical( Killens Operators)
Trolley Men
The companies in cement sector take their people as one of its most
valuable assets they view their human resource as a competitive
advantage therefore they ensure that their employees only those people
that are self motivated and professionally qualified. They also take into
consideration that their business goals are realized through such diverse
work force providing equal opportunities without any discrimination on the
basis of cast, creed, gender and religion:
Land:
The land that has the factories and used for accommodation is owned by
most of companies. There is enough space to accommodate new plants if
the need arises.
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2.8 PAKISTAN CEMENT INDUSTRY
(Operational Units Data)
But on other hand there are many factors, which can create many
problems in Pakistan cement industry. According to the analysts of
Pakistan Credit Rating Agency (PACRA) the cement sector is currently
facing stern challenges emanating from a wide spectrum of socio-
economic risks including contracting economic activities, and high input
costs. These negative developments, along with the prevailing credit
crunch and rising interest rates, have further constrained the industry's
prospects.
The conducive economic environment not only fuelled the local demand
but also provided impetus for capacity expansion. Resultantly, the
industry added significant capacity recently, while several new production
lines are scheduled to commence operations shortly. During this period,
the cement manufacturers also established export operations by catering
to the growing demand of regional economies. This, while stabilizing the
local cement prices, had a positive impact on capacity utilization and
margins. Although the local demand dwindled significantly in the first
quarter of FY 09 (around 15% declines), strong growth in exports has
provided support to the industry in the form of largely sustained capacity
utilization and price stability. However, given the global recession, export
demand is expected to come down.
This would negatively impact the margins and put pressure on local prices
that could lead to a price war among producers. The looming supply
overhang scenario in the sector could potentially worsen the situation.
Profitability of the sector has come under pressure due to high energy
cost (comprising around 50% of total raw material costs) and increasing
financial expenses.
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Keeping these developments in view, the outlook on the sector is negative
which implies that PACRA perceives downward pressure on the ratings
within the industry, especially for high leveraged entities. PACRA, as part
of its on going surveillance, is monitoring all developments very closely,
and may take a client specific rating action wherever it is deemed
appropriate. However, the cost and exports may be affected due to
weakness of the US dollar causing coal, electricity charges and freight
prices, comprising 65 to 70 percent of the cost. The PSDP allocation has
been cut by Rs 75 billion and feared further cuts would curtail cement
demand. Major capacities of countries like India and Iran are expected to
come online by FY10 and onwards which are likely to convert these
countries from dependent importers to potential exporters.
1. Federal excise duty on cement has been raised to Rs 900 per Tonne
from the existing base of Rs 750 per tonne.
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the cement price per 50 kg bag when compared to India
suppressing demand for Pakistan cement.
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2.11 GLOBAL CEMENT PRODUCTION:
Recent years have seen the cement industry grow dynamically with most
of the actions taking place in emerging economies. Despite the ongoing
financial crisis the global economy is facing, the need for housing and
continued government investments in infrastructure development by
emerging economies is offsetting downturn in mature markets. Though, at
present, demand is growing, but at a decelerated pace, the phase is
momentary. Long-term projections indicate healthy demand growths, as
world economy stabilizes and construction activity picks up across global
markets into the next decade.
China, followed by India, United States, Japan and Russia, represent the
largest producers and consumers of cement worldwide. Other countries
featuring prominently on the global cement space include Spain, South
Korea, Italy, Iran, Turkey, and Brazil. Significant capacity expansions in
China, India, Saudi Arabia, UAE, Turkey, Egypt, and Brazil are underway
and planned for the next few years.
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represent the largest markets for cement. The fastest growing market,
however, would be Ready-mix Concrete Producers, as they benefit from
ban imposed by the Chinese government on mortar and concrete mixing
at construction sites.
Meanwhile, the second largest regional market, India, would see cement
demand advance the fastest for the Ready-mix Concrete Producers
market. Though demand from Consumers, the largest cement market,
would continue to grow, it would lose share to Ready-mix Concrete
Producers and Concrete Products Producers markets.
"Cement:
A Global Strategic Business Report" from Global Industry Analysts, Inc.
provides a comprehensive review of market trends, drivers, product
profile, players, competition, recent developments, mergers, acquisitions,
and other strategic industry activities. Analysis is presented for major
geographic markets such as the United States, Japan, Europe, Asia-Pacific,
Latin America, and Middle East & Africa. Global and regional analytics are
provided for product segments including Portland cement, Blended
Cement, and Special / Other Cement.
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2.12 World Cement Producers
Country 2007 2008 2009
(By Principal Production of Cement
Countries)
Brazil 39500 39500 40000
China 626500 705000 750000
Egypt 24500 23000 26000
France 19839 20000 20000
Germany 28034 30000 28000
India 100000 100000 110000
Indonesia 31100 33000 34000
Iran 26650 30000 31000
Italy 39804 40000 40000
Japan 76550 71800 72000
Korea, Republic of 52012 55500 56000
Mexico 29966 31100 31500
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2.12 Global Cement Trade & Shipping –
Future Outlook to 2015
Jul 02, 2008 – Global Cement Trade & Shipping - Future Outlook
to 2015
Construction booms and downturns can alter the regional cement trade
profile dramatically – as witnessed in recent years in many of the world’s
leading markets. Similarly, the rush to build new production capacity to
meet future demand can make significant volumes of cement and/or
clinker available for export, with the location of the plant and inland
logistics determining the economic feasibility of overseas shipments.
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for import requirements and export availability, but also on the likely
future development of the specialist cement carrier fleet and the general
bulk carrier sector. With extensive development ahead for the sizes of
bulk carrier of most relevance to the cement sector, the outlook for
cement shipping via this mode is highly uncertain, especially given the
extent of market uncertainty over the future path for shipping freight
rates.
For the specialist cement carrier sector, Global Cement Trade & Shipping -
Future Outlook to 2015 includes a highly detailed set of analyses of the
current fleet, and an examination of the likely forward development,
based on the age profile and trends in new vessel ordering.
Table of Contents: -
SECTION 1 INTRODUCTION & EXECUTIVE SUMMARY
SECTION: 2 OVERVIEW:
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cement and clinker trade over the past 35 years, with most emphasis on
the recent years of extensive trade volume and structure development.
Attention is focussed on the main factors underlying trade developments,
and the importance of seaborne shipments within the trade aggregate.
SECTION: 3
EUROPE
Imports and exports by European countries dominate world trade,
although a large part of the European trade total comprises inland
movements between neighboring countries. This Section includes
full discussion and analysis of regional trade volumes and patterns,
as well as examination of the trade profile in recent years for key
import markets and export sources.
3.1 Overview
3.2 The European Union
3.3 Other Europe
SECTION 4 :
THE AMERICAS
The US cement market has been the world’s leading destination for
cement & clinker exports in recent years, as cement consumption
levels have far exceeded domestic capacity. Whilst there has been
an import level fall in recent years, there is now a resurgence in
import levels as demand continues to expand – this Section
examines the scale and structure of US import demand, and
examines the main sources of supply for the US market.
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imports & exports for all the main markets and suppliers in the
region.
SECTION 5:
AFRICA & THE MIDDLE EAST
For each of these regions, the overall regional profile at the current time
and over recent years is examined and discussed, before detailed
individual country analyses are presented for the key import markets
and exporting countries.
5.1 Africa
5.2 Middle East
SECTION 6:
EAST ASIA
The traditional major roles played by Japan and South Korea in Asia and
Pacific markets have been supplanted in recent years by the sheer scale
of expansion of exports from China. Whilst these have been largely
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destined for trans-Pacific or intra-Asia movements, supplies from China
and the region have also been shipped to a wide variety of markets
world-wide.
At the same time, the region includes a number of significant cement and
clinker import markets, supported by the involvement of the region’s
large cement companies in import facilities overseas. Detailed
examinations of the regional and national import/export profiles are
presented and discussed all the major countries in the region.
Export
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2.13 Demand of cement industry :
The growth in overall cement sales mainly came from the record high
cement exports during the year. After six years of consecutive YoY
growth, the domestic cement market depicted a declining pattern in the
wake of lukewarm construction activities amid economic slowdown, high
interest rates, liquidity crunch and cut in infrastructure spending both in
public and private sectors, during the year.
On the other hand, the utilization level for export sales recorded at 27
percent versus 21 percent in FY08. The rising export demand helped the
local cement industry to operate at an optimum level during the year.
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solely due to the fall in domestic cement demand caused by the reason
mentioned above. However, it is not expected that the per capita levels
of cement would fall further.
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2.15 Cement sector to face rising costs,
slowdown in demand in fy09:
The fiscal 2008-2009 is being marked as a challenging year for cement
manufacturers as the sector would face the rising costs and a slow down
in demand with exports growing by 50 per cent during the period.
The cement sales showed strong growth of 24pc as exports registered a
growth of 147pc over the period and played a key role while local sales
remaining subdued with 6 percent growth with regional capacity
expansions yet to come online, local cement manufacturers remain in a
strong position to capitalize on export sales over fiscal 2009.
They said that rising input costs, particularly coal and a high interest rate
scenario are likely to keep pressure on the bottom line. However,
increasing exports should help the manufacturers pass on the impact.
According to the latest numbers issued by the All Pakistan Cement
Pakistan Association (APCMA), cement dispatches for Jun 2008 summed
up to 2.77 million tons and a shift in trend from local to export sales is
evident. Around 67 percent of total dispatches were local sales while the
remaining 33percent are attributed to exports with a significant increase
over last year; in Jun 2007 exports accounted for about 18percent of
total dispatches.
Cement sales for fiscal 2008 registered at 30.11mn tons with exports
contributing approximately 26percent compared to 13percent in fiscal
2007.
Talking about exports sales, which may boost margins, the industry
sources said that cement manufacturers spent most of last year building
relationships with foreign clients and applying for quality certificates. The
exports sales are expected to increase further during fiscal 2009.
There is expectations that higher exports would help in boosting margins
following the dual effect of reducing excess supply in the local market
which will help prevent a price war and economies of scale. Once
regional capacities come online, export growth is expected to slow down
especially in India and the Middle East. However, local manufacturers are
also exploring other potential markets such as Sri Lanka, Africa and
Europe to offload their surplus capacities. Local demand is also expected
to pick up once political and economic uncertainty clears.
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Local cement demand fell 13 percent in
FY09:
Pakistan cement sector ended FY09 with local sales witnessing a meager
2 percent Y-o-Y growth at 30.8 million tonnes, data released by All
Pakistan Cement Manufacturers Association said.
According to the data, the growth in overall cement sales mainly came
from the record high cement exports during the year.
“After six years of consecutive YoY growth, the domestic cement market
depicted a declining pattern in the wake of lukewarm construction
activities amid economic slowdown, high interest rates, liquidity crunch
and cut in infrastructure spending both in public and private sectors,”
Muhammad Rehan Khan, analyst at First Capital said.
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tonnes of cement – comparing with FY09’s cement exports this translates
into a CAGR of 95 percent”.
Interestingly, during June 2009, the industry also achieved the highest
ever monthly exports of 1.22 million tonnes with 35 percent capacity
utilization.
During the last fiscal year FY09, cement industry witnessed additions of 5
million tonnes capacity (7 million tonnes in FY08). Now, the total cement
production capacity of the industry stands at 42 million tons as against
the end-June level of 37 million tonnes.
Cement price to go up
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manufactures to enhance the prices of cement by Rs 5 to Rs 6 per bag.
He further said that on one side, the government provided some relief to
the cement industry by decreasing the federal excise duty (FED) in new
federal budget but, on the other, it increased the prices of petroleum
products, which enhanced the cost of production.
Many cement plants would be shutting down in the near future if the
current cement market prices prevail any longer, a senior executive of
DGK Cement revealed. Talking to journalists visiting the DGK Cement at
Khairpur, he said that at present the most efficient cement factories in
Pakistan are suffering a loss of Rs35 to Rs45 per bag and only the units
with capacity to sustain the loss will survive. General Manager Works DG
Khan Cement plant Khairpur Dr. Arif Bashir said that the cement industry
is facing over Rs75 billion of loans, a steep loss curve of Rs40 per bag in
the local market and uncompetitive prices in the international market. In
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his presentation on the cement sector of Pakistan, Dr Arif Bashir said that
while the cost of production is high, owing to rising fuel and energy
costs, the domestic demand of cement has dropped by 13.44 per cent in
2009. The only saving grace for the cement industry at present was that
cement exports increased by 47.4 per cent, he added. Bahsir said that
the cement industry has invested around $6 billion in expanding its
capacity from 16.72 million tons in 2002 to 41.76 million tons in 2009.
The investment policy regime has been liberalized with most economic
sectors open for foreign involvement.
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incentives for investment as well as enabling 100% ownership for foreign
investment in many areas. The new Investment Policy provides equal
investment opportunities for both domestic and foreign investors.
The Government has decided to give “priority industry” status for foreign
investment into information technology, oil and gas exploration, mining,
leather production, corporate farming, livestock and dairy, financial
business and trade, infrastructure, tourism, housing and construction
sectors. Complete freedom of choice has been provided on where to
locate an activity
Employee issues
Pakistan is one of the countries having low labor cost as an advantage.
But like U.K, Pakistan also have minimum wage legislation, laws of
prohibition of child labor, working conditions at work, health and safety
regulations and labor rights Act, and termination of employment laws.
Pakistan was previously relying on its Karachi port for the shipment of its
imports and exports. It was over crowded and expensive. Pakistan has
built a new deep sea port at Gwadar in the strategically important
Province of Balochistan bordering with Iran. This port has been declared
duty free, on top of this cheaper labor makes it the cheapest port in the
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whole South Asia region.
Tax structure
Instead of providing any relief in the budget, the sector was further
penalized with a 3% increase in sale tax to 18%. So far, the
manufacturers have been able to pass on the increase to consumers but
the situation is unlikely to continue. However, the possibility of formation
of a cartel cannot be ruled out. Since massive investment has been
made in the sector, any reduction in price of cement can reduce profit
margin of all the units.
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Excise Duty
Price to manufacture one bag of cement has risen to Rs. 375.60 / bag in
2008 from Rs. 228.21 / bag in 2007. Electricity has risen by 20%.
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0.1% of ex factory price which amounts to Rs. 3 per bag.
CHAPTER# 3
FRAMEWORK OF ANALYSIS
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3.1 HYPOTHESIS ANALYSIS
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3.2 TERMINOLOGIES OF INDUSTRY
APCMA All Pakistan Cement Manufactures Association
UK United Kingdom
FY Financial year
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SRPC sulfate-resisting Portland cement
RS Rupees
1. Primary data
2. Secondary data
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1. Primary data: -
In primary data collection, you collect the data yourself using methods
such as interviews and questionnaires.
2. Secondary data: -
• Government statistics.
I collected lot of rice related data through the different web sites like
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google.com. My topic is cement Production and the role of bank in this
field. So I was searching the data about the role of bank in the production
of rice.I wanted to know about its reasons and their impact on Pakistan’s
economy and I got through my research.
(1) High interest rate is the biggest hurdle in the credit enhancement in
cement sector.
Price to manufacture one bag of cement has risen to Rs. 375.60 / bag in 2008
from Rs. 228.21 / bag in 2007. Electricity has risen by 20%.
(4) On top of all the issues is the harassment of the industry by different
government departments, industry sources said. They said that
Pakistan Standard Control Authority had filed criminal cases against
the cement manufacturers.
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(5) The adverse impact of slow exports of cement to India started to
emerge in December 2008 as lesser orders have been received by
exporters.
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LUCKY Cement Company Limited
2009 2008
2008: 5294,083 – 230,089 =
2.06 0.19 2.06
2454,761
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3. Debt equity ratio: Total debts
Shareholder equity
2009 2008
2009: 11755,812 = 1.21%
9690,689 1.21 0.34
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Current liability
0.62 2.1
2008: 5294,083 = 2.1 %
2454,761
2009 2008
2008: 5294,083 – 230,089 =
2.06 0.19 2.06
2454,761
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12,454,493
4. Electricity rates and transportation costs are also high because of the
high prices of POL in a falling world oil market.
Any of the above problems may cause the rice production negate
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Chapter# 4
IMPLICATION AND CONCEPTUAL
FRAMEWORK OF CEMENT
MANUFACTURING
COMPANY COMPANY
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1-Current Ratio
0.62
2-Quick Ratio
0.19
4- Debt Ratio
0.54
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The cement industry of Pakistan entered the export markets a few years
back, and has established its reputation as a good quality product. The
latest information is that India will import more cement from Pakistan. So
far 130,000 tones cement has been exported to the
neighboring country.
The last few years have been a golden period for cement
manufacturers,when the government increased spending on
infrastructure development. High commercial activity and rising demand
for housing on account of higher per capita income has kept cement off
take growth in double digits.
The cement demand grew 19 percent and 13 percent during FY05 and
FY06 respectively. During the first nine months of FY07-08, production
increased by 30 percent as compared to last year. The demand for
cement was forecasted to grow by 26 percent during FY07 and 17
percent in FY08. The per capita consumption of cement has risen from
117 kg in FY06 to 131 kg in FY07.
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percent GDP growth, increasing number of real estate development
projects for commercial and residential use, developing export market
and expected construction of mega dams. The operating capacity of
cement in FY05 and FY06 was 18 million and 21million tones, which rose
to 37 million tones by the end of FY07.
The cement manufacturers added eight million tones to the capacity and
the total production was expected to be 45 million tones by the end of
2010. It may result in a supply glut of 11 million, nine million and seven
million tones in 2008, 2009 and 2010 respectively.
However, the cost and exports may be affected due to weakness of the
US dollar causing coal, electricity charges and freight prices,
comprising 65 to 70 percent of the cost. The PSDP allocation has been
cut by Rs 75 billion and feared further cuts would curtail cement
demand. Major capacities of countries like India and Iran are expected to
come online by FY10 and onwards which are likely to convert these
countries from dependent importers to potential exporters.
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addition to this, to control real estate prices the government is
considering imposing a tax on it.
The export may reach to $ 500 million increase during 2008. Data for
the first quarter of FY08 shows that Afghanistan is Pakistan’s largest
cement export market. The prospects for cement exports seem bright in
the medium term due to rising domestic as well as regional cement
demand. Pakistan also achieved improved access to India after the
complete removal of the 12.5 percent custom duty on Portland cement
imports in this country from January 2007, showing improved export
opportunities for Pakistan. India is planning to import more cement from
Pakistan to stabilize prices in the market and the government wants a
balance in demand and supply of cement in the current fiscal year.
The import of cement from Pakistan has increased manifold during last
four months. India has registered a number of Pakistani cement
manufacturers, a requirement to facilitate import of cement. Pakistan
has already increased the frequency of trains from one to three in a
week to carry cement from Pakistan to Wagah border. Due to boom in
the construction industry, India needs cement in bulk to meet its growing
needs. The success of the sector depends on exports, its profitability
from depressed local prices and cost appreciation. The exports for FY08
have already surpassed the last whole year’s export of 3.19 million tones
and are likely to reach to 6.67 million tones in 2008.
The targets for exports for 2009 and 2010 are set to be 9.99 million
and 10 million tones respectively. Currently, the export demand is
expected to be from new inductee India along with other countries like
Gulf Cooperation Council (GCC) countries, due to rising oil prices-led
economic growth. More countries like South Africa to make the football
stadiums for the World Cup and Sri Lanka are also expected to approach
Pakistani companies for cement imports. However, export depends on
factors such as: ability to produce cement at Rs 85 per bag. Export
strategy should be made for at least three years, 2008-10, after which
new plant will start production in the region. In the meantime industry
should explore new markets for export or ready to lower prices of
cement in local market.
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have gone down in the international market to $124 from nearly $ 140 in
November 2007 to January 2008.
Conclusion
Cement industry is indeed a highly important segment of industrial
sector that plays a pivotal role in the socio-economic development.
Though the cement industry in Pakistan has witnessed its lows and highs
in recent past, it has recovered during the last couple of years and is
buoyant once again. With its 27 factories producing 14.68 million tones
to 10.4 million tones in the north and 4.2 million tones in the south - it
pays a heavy 45 per cent excise duty compared to 25 per cent in India
and 10 percent in the Philippines, Indonesia and Egypt and 7 per cent in
Thailand. In addition there are heavy taxes on the cement bag itself. The
production costs in Pakistan are high. The electricity rates and
transportation costs are also high because of the high prices of POL in a
falling world oil market. Wages have also been rising. At the current
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point cement manufacturers and the government have to take concrete
steps even to keep units in production. On the inputs side, necessary
steps are required to contain the increasing energy cost. The
government must also look into the case of providing subsidy on freight
to the exporters of clinker and cement. The prescription is to optimize
capacity utilization. Pakistan currently has a per capita consumption of
120kg of cement, which is comparable to that for India at 135kg per
capita but substantially below the World Average 270kg and the regional
average of over 400kg for peers in Asia and over 600kg in the Middle
East. Over the years a number of tax policy and administrative measures
have been introduced to attract investment and facilitate growth of the
cement industry. The Government has reduced central excise duty (CED)
on cement in the budget for 2007-08 in order to boost construction
activity. In Pakistan APCMA plays a significant role in projecting the
cement industry to the Government and coordinating various activities in
respect of formulation of Government policies for the cement industry.
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