Cement expansions on track

Since this year began, cement expansions that were announced during 2016 and 2017 are officially on the road. Lucky Cement secured its leadership position end of 2017 with a 1.3 million tons brownfield expansion at its Karachi plant. Attock cement added 1.2 million tons to its Hub Baluchistan plant. Meanwhile, just last month DG Khan Cement announced its own greenfield facility in Hub of 2.8 million tons, while earlier this month, Bestway Cement that was acquiring Dewan Cement but shelved those ideas announced its own 1.8 million tons of brownfield expansion at its Farooqia plant. The planned expansions are expected to go up to 75 million tons by 2020.

Mapleleaf, Pioneer, Power cement will see their expansions come through over the next year. Lucky is also expecting its expansion at the Pezu Plant (2.6 million tons) in KP to come around during the last quarter of FY19. It will continue to be market leader well into the next few years.

The industry is currently growing by 15 percent, and if it continues to grow at this rate year on year, by 2020 when all the expansions will come into play, the industry will still be at 81 percent capacity utilization. The question is whether the industry will be able to maintain this growth year after year. Recently, the sector has seen the cement price fluctuate as supply grew especially in the north and for a while, it seemed much of the expansions in the region will be halted due to an environmental case filed against some players. However, that was resolved faster than expected (read “Much ado about nothing”, May 11, 2018).

The financial budget has continued to raise FED on cement bags, and cement manufacturers pass this on to consumers. Prices have been raised between Feb-June 2018 by 8 percent; 3 percent of which came about in just the past month. As expansions come through, and demand can’t keep up its 15 percent rally, prices will have to be slashed accordingly to keep selling. Earlier facing idle capacity, many manufacturers in the north were selling cement at discount prices to keep their plants are a good level of utilization. This of course affected margins all around.

Whereas the expansion scenario is positive for the industry, cement manufacturers have seen their margins plummet not only in the face of falling retention prices, but also the rising cost of production mainly with coal price hikes globally. That trend is expected to carry well into FY19. Global demand for coal is growing but China is expected to restrict supply in its new quest toward environmental sustainability—this will bump coal prices up.