Cement industry - steering through the pandemic.

Byline: Muhammad Nadeem Malik

Everyone having some interest in the economic matters must have heard economists saying that the construction industry set in motion 40 allied industries. This is a tested hypothesis and easily traceable in correlation between sales of cement, a most important constituent of the construction industry, and economic growth. Because of this representative nature of the cement, I call it 'poster commodity' of the construction industry.

Global cement industry is among the initial industrial sectors to recover from the adverse effects of the Covid-19. Pakistan cement industry is not an exception to this and recovered with a growth of about 20 per cent in the year 2020-2021. This is one of the highest growth rate in the cement industry. Though, this YoY growth can be attributed to stagnant growth in the year 2019-2020, but still this a phenomenal recovery supported by various incentives given to the construction industry by the Government of Pakistan.

If we analyse and forecast for the next 4 years, the global cement consumption excluding China is expected to grow by 5 per cent yearly till 2025. This is a good growth rate for any industry. Pakistan's local cement consumption is also expected to have CAGR of 7 per cent till the year 2025 taking the local consumption to 65 million tons per annum. The export of cement may remain steady around 5 million tons a year with export of clinker adding to it by 3 to 4 million tons per annum. Foreseeing this robust growth in the cement consumption the Pakistan cement industry has entered into a third phase of the expansions made during the last 20 years. The current production capacity of the cement industry of Pakistan is 69 million tons per annum that was 16 million tons per annum at the start of this millennium. Even with comparatively small production size at that time, capacity utilisation was 64 per cent in the year 2001, which has now grown to 85 per cent despite an increase of more than 300 per cent in the production capacity. Per capita consumption of the cement has also increased from about 72 Kg/head in 2001 to 233 Kg/heading 2021. This cement consumption is still well below global per capita consumption of 540 tons projecting significant potential for growth in cement consumption in Pakistan.

This remarkable opportunity does not come without challenges. The biggest challenge would be to control the cost. The production cost of the cement is under substantial pressure...