Cement
CEMENT
The Pakistan Credit Rating Agency Limited
CEMENT SECTOR Diminishing local demand Supply-demand imbalance
1. The cement industry in Pakistan is composed of 24 players with annual production capacity of around 40mln MT. The sector is dominated by six major players – Lucky Cement Limited, Bestway Cement Limited, D.G. Khan Cement Company Limited, Maple Leaf Cement Factory Limited, Gharibwal Cement Limited, and Kohat Cement Company Limited – constituting over 60% of the total production capacity. The industry maintains a positive correlation with GDP growth, which stood at around 7% during last five years. The major domestic demand drivers are Public Sector Development Programs (infrastructure), real estate and industrial construction. Pakistan Cement Industry - Capacity Share Conducive economic environment not only fueled the local Lucky 19% demand but also Others provided impetus for 39% Bestway capacity expansion. 11% Resultantly, the industry added significant capacity DG Khan and several new Kohat Maple Leaf Gharibwal 10% production lines are 6% 9% 6% scheduled to commence operations in 2009. The sector is currently facing stern challenges emanating from a wide spectrum of socio-economic risks including contracting domestic economic activity, slowdown in GDP growth and construction activity and heightened security risks. 2. Due to the commodity nature of the product, differentiation and brand equity is minimal. Furthermore, Cement Supply-Demand Trend (Pakistan) manufacturers as well as major consumers in the local market 40 35% are reluctant to enter into exclusive supply contracts. 35 30% Hence, the possibility of 30 25% gaining captive markets through 25 long-term contracts is non20% 20 existent.
15% 15 3. Lately, profitability of 10% 10 the industry came under 5% pressure due to high energy 5 costs (comprising around 50% 0 0% of total raw material costs) and Years FY05 FY06 FY07 FY08 increasing financial expenses. Proudction Capacity (mln. T
The Pakistan Credit Rating Agency Limited
CEMENT SECTOR Diminishing local demand Supply-demand imbalance
1. The cement industry in Pakistan is composed of 24 players with annual production capacity of around 40mln MT. The sector is dominated by six major players – Lucky Cement Limited, Bestway Cement Limited, D.G. Khan Cement Company Limited, Maple Leaf Cement Factory Limited, Gharibwal Cement Limited, and Kohat Cement Company Limited – constituting over 60% of the total production capacity. The industry maintains a positive correlation with GDP growth, which stood at around 7% during last five years. The major domestic demand drivers are Public Sector Development Programs (infrastructure), real estate and industrial construction. Pakistan Cement Industry - Capacity Share Conducive economic environment not only fueled the local Lucky 19% demand but also Others provided impetus for 39% Bestway capacity expansion. 11% Resultantly, the industry added significant capacity DG Khan and several new Kohat Maple Leaf Gharibwal 10% production lines are 6% 9% 6% scheduled to commence operations in 2009. The sector is currently facing stern challenges emanating from a wide spectrum of socio-economic risks including contracting domestic economic activity, slowdown in GDP growth and construction activity and heightened security risks. 2. Due to the commodity nature of the product, differentiation and brand equity is minimal. Furthermore, Cement Supply-Demand Trend (Pakistan) manufacturers as well as major consumers in the local market 40 35% are reluctant to enter into exclusive supply contracts. 35 30% Hence, the possibility of 30 25% gaining captive markets through 25 long-term contracts is non20% 20 existent.
15% 15 3. Lately, profitability of 10% 10 the industry came under 5% pressure due to high energy 5 costs (comprising around 50% 0 0% of total raw material costs) and Years FY05 FY06 FY07 FY08 increasing financial expenses. Proudction Capacity (mln. T