Cement industry - Development and Prospects of Growth.

Byline: Muhammad Nadeem Malik

The start of this millennium was not good for the cement industry of Pakistan. Market growth was in shackles of uncertain economic conditions leading to lack of construction work on the infrastructure projects. However, subsequent opening of the zero rated exports in 2001 to rebuild Afghanistan was starting point and laid foundation for the survival of the cement industry. Opening of the Afghanistan border provided a new vista of sales improving capacity utilization. All these factors and a steady boost in the local demand led the cement industry to unprecedented local market growth and profits since then, especially the last 5 years have been phenomenal in this regard. This period have been a boon for the industry in terms of growth and resulting profits.

This growth of the cement market has very rightly attracted the business savvy investors and industry fellows to go for expansions and as such, the production capacity has been more than tripled from 16 million per annum in the year 2001 to 54 million in the year 2019 and is expected to 62 million tons per annum by end 2019. This is quite extraordinary capacity addition and remarkable by any business standards. Initially this capacity utilization was buoyed by exports to Afghanistan, India and African countries. However, subsequently sales got a strong support from stead fast growth in the local market triggered by various housing and infrastructure projects afterwards supported by China-Pakistan Economic Corridor (CPEC) as well.

Now the question is whether this growth and resulting profitability of the cement industry is sustainable or can lead to challenging market situation for the players in the cement industry of Pakistan. Political stability and socioeconomic position of Pakistan would determine the answer.

Mathematical analyses of this local market's growth trend would suggest that the industry started this millennium on a promising note with high CAGR of 11.35% during the first five years i.e. 2001 to 2006. However, the industry has maintained an overall CAGR of 7 to 8% during different periods. The industry has a CAGR of 8% since the start of this century i.e. 2001-18, CAGR of 6% during preceding 10 years i.e. 2008-18 and CAGR of 10% during last 5 years. Nevertheless, if we see the CAGR of last three years from 2016 it is gain 7.63%. As such keeping in view our socio economic indicators, we foresee a CAGR of 5 to 6 % in the short run until 2022 and a...