'Pakistan's cement sector is aggressively exploring more and more export markets'
Q: What role does APCMA play currently in representing the cement sector and what is your vision?
Ans: APCMA plays a significant role in projecting the cement industry of Pakistan, both at National and International level besides co-ordinating various activities with respect to formulation of Government policies for the cement industry through continuous dialogues and interactions.
APCMA identifies and strengthens industry's role in the economic development of the country, as collectively cement sector is one of the largest contributor to the national exchequer both through direct and indirect taxes.
APCMA disseminates information on proper and economic use of cement as well as on properties and application of different varieties.
Provides up-to-date statistical data/information to the industry and other agencies like Federal and Provincial Revenue Authorities. Interacts for Industry's problems with the Government and co-ordinates various activities with other bodies.
Q: You are the current Chief Executive of Lucky Cement, the biggest cement company in the country. Is there perhaps a conflict of interest when talking about new players entering the market and in addressing or acknowledging the issues faced by the smaller firms (Fecto, Dandot etc) that are part of the association?
Ans: The Chairman APCMA is elected by the members of APCMA through mutual consensus and holder of office always ensure that he remains impartial in Association's affairs.
Q: What role can the government take in terms of policy to encourage investments in the sector?
Ans: Cement sector is one of the largest sectors in terms of employment generation both directly and indirectly. It is a large capital intensive industry. Government can play a huge role by providing following incentives to the sector:
a) Rationalization of royalty rates on limestone;
b) Processing the new lease licenses on fast track basis;
c) Reducing or eliminating the excise duty rates in order to make cement an affordable commodity; and
d) Rationalization of direct tax regime through elimination of WWF & WPPF.
Q: You announced recently that the sector will be adding $1billion worth of capacity with major firms (DG khan, Cherat, Attock etc) taking over expansion projects. What local and international markets/projects are in mind for these expansions- other than CPEC?
Ans: Presently, domestic consumption of cement is stood at 170kg per capita which is one of the lowest in the world. Efforts should be made to increase this low level of consumption to at least 300kg per capita. CPEC can play a vital role in achieving this target. It is because of this that serious cement players are now expanding. In the past because of poor law and order situation, the opportunity in the form of lower per capital consumption was largely over shadowed but with improved law and order situation and better socio economic indicators have again drawn the attention of investors in this sector and it is because of this reason that current local consumption have increased with higher double digit growth.
Q: Can you give us some key info figures:
i. How much capacity in tons will be added to the current production after expansion in capacity?
Ans: Capacity will be increased by 30,400 tons per day
ii. How long will these expansions take?
Ans: It will take two to four years.
Q: There is a wide price differential between domestic and exported cement per ton (some figures say about Rs 520 per bag for local and export prices are less than 300 per bag). Why such a wide differential, and it can't be solely due to increase in duties. How will the sector address this?
Ans: the difference is mainly because of duties and taxes levied on domestic consumption of cement while exports are zero rated.
Q: When the government imposes an added tax (super tax for instance), it is passed onto the consumers. Coal prices have been falling; more cement firms are becoming self-sufficient in power production boasting energy efficiency. As a result, the sector on the whole enjoys really high margins (42 percent in 9MFY2016 for major firms). Why are these advantages not passed onto consumers in terms of pricing?
Ans: This perception is not true. All the large consumers / projects enjoy the benefit of volumetric discounts.
Q: Do you think given these across-the-board expansions, a price war is imminent?
Ans: If the consumption increases by 10% annually over the next 3 years, then new expansion will be absorbed.
Q: Do you feel the sector is well-prepared for CPEC?
Ans: Cement sector is ready for CPEC projects. Cherat cement and Attock cement capacity shall be available in the market by October 2016 and January 2018 respectively.
Q: Is there something for everyone? Will everyone get a piece of the pie or are there any dominant players that will likely take bulk of the share?
Ans: Everyone will be able to share a piece of the pie. Companies who are investing in expansion will be able to reap major benefits.
Q: What are your demand estimations: how much domestic cement demand do you expect in the next five years?
Ans: Hopefully the government spending as well as expected CPEC projects will help to increase demand by 10% annually.
Q: The focus for the sector has been catering to local demand. Exports have been falling for some time now. Aside from South Africa that has levied an anti dumping duty, what other markets should the sector be exploring? Is development in Gulf, Saudi Arabia a potential export market worthy?
Ans: The sector is aggressively exploring more and more export markets. Pakistan's cement sector has earned export markets with great efforts and hopefully industry would continue its footprints in these markets in years to come.
Q: In the region, India, Sri Lanka, Nepal all have growing cement markets. How do you leverage your geographical advantage to reach these markets before ASEAN economies (Vietnam, Thailand) get in with their competitive prices, which is already happening?
Ans: There is no comparison between ASEAN & SAARC because of different dispute related dimensions in our region. However, in years to come like Sri Lanka, India will also be a large market for Pakistan's cement sector both through land and sea.
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Cement Sector at a glance
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Fiscal Year Production Capacity
Capacity Utilisation
Tonnes (mn) % age
============================================
FY07 30.50 79.56
FY08 37.68 80.40
FY09 42.28 74.05
FY10 45.34 75.46
FY11 42.37 74.17
FY12 44.64 72.83
FY13 44.64 74.89
FY14 44.64 76.79
FY15 45.62 77.60
FY16* 45.62 83.91
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Source : APCMA
-- July-April
============================================
Production Capacity
Fiscal Year Capacity Utilisation
Tonnes (%) RHS
(mn) LHS
============================================
FY07 30.50 79.56
FY08 37.68 80.40
FY09 42.28 74.05
FY10 45.34 75.46
FY11 42.37 74.17
FY12 44.64 72.83
FY13 44.64 74.89
FY14 44.64 76.79
FY15 45.62 77.60
FY16* 45.62 83.91
============================================
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Fiscal Local
Year Despatches PSDP
Tonnes (mn) Rs (mn)
============================================
FY07 21.03 -
FY08 22.58 -
FY09 20.33 418,967
FY10 23.57 510,000
FY11 22.00 462,000
FY12 23.95 733,664
FY13 25.06 851,407
FY14 26.14 814,720
FY15 28.21 1,188,223
FY16* 26.97 1,393,577
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Source : APCMA
-- July-April
============================================
Year Local Sales PSDP
(tonnes in mn) (Rs in mn)
(LHS) (RHS)
============================================
FY09 20.33 419
FY10 23.57 510
FY11 22.00 462
FY12 23.95 734
FY13 25.06 851
FY14 26.14 815
FY15 28.21 1,188
FY16* 26.97 1,394
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