If you read our last story on the subject in January, our tally for cement expansions stood somewhere between 23-25 million tons. But in the cement industry lately, every day is a brand new day for some more exciting news.
Just a few days ago, Bestway cement announced it had signed an intention to acquire Dewan cements assets (with capacity of 1 million tons) along with a new brownfield project of 6,000 tons per day (Read our story: Cement: Clash of the titans). This brings Bestway back into the game.
So far, with the exception of smaller companies including Thatta, Flying and Dandot; nearly all the cement players both in the south and north are expanding their capacities. After Bestways dual notices (expansion and acquisition) and Power cements announcement earlier of an expansion of 2.47 million tons, which is significant for a company that has an existing capacity of only 0.9 million tons; it seems the industry will see a growth of over 60 percent in existing capacity over the next few years. Some quick calculations and capacity share by company can be viewed on the graph.
This column discusses cement sales numbers every month in detail but to review: the dominant trend emerging during the current fiscal year is that cement players are looking at local demand for most of its optimism. Demand driven mainly by hopes for a massive increase in housing as well as infrastructural development is pushing firms to expand. Already, cement dispatches are growing by an average 10 percent which is meant to go up to 12-15 percent per year. In addition, the sector is running at maximum capacity, so these expansions are coming at the right time.
Meanwhile, not much concern is displayed when it comes to exportswhich back in 2009 used to constitute 35 percent of all cement sales; and have now fallen to hard timesstanding at less than 15 percent. They are falling month after month, mostly because of the less receptive African markets particularly South Africa (which has an anti-dumping duty on certain Pakistani cement players) and a decline in exports to Afghanistan. The latter has been Pakistans biggest market for cement which has been overtaken by cheaper Iranian cement.
There are no indicators that suggest exports will turn around. But then there are no indicators that suggest that anyone is worried.
The focus is inward: the cement players are also investing in waste heat recovery or captive power generation to cut down on costs which have helped the players improve their margins averaging over 40 percent. They are fundamentally well-placed to cater to the demand, and in fact, the 28 million tons announced capacity expansion for now might not be the end of it. We might hear more news on this front as CPEC gets in full swing and the picture for the future seems clearer.
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