‘Cement industry expansion unlikely to instigate price war’

KARACHI: There is no chance of price war in cement industry after the capacity expansion announced by the key cement makers, a senior official said on Thursday. 

“We believe that the cement sector would grow around eight percent in the ongoing fiscal year,” Mohsin Raza Naqvi, chief financial officer of Maple Leaf Cement Factory Ltd (MLCF) said, addressing a session organised by Arif Habib Limited. 

“PML-N government is focused on infrastructure development and a number of mega projects are coming up, while cement demand is estimated to surge to 52 million metric tonnes by 2021.” 

Maple Leaf Cement, 55 percent owned by Kohinoor Textile Mills, is a premier cement manufacturer with its plant situated in the north region and eight percent share in the total country’s capacity. 

Naqvi said demand is increasing and the surplus production would be absorbed. “Most of the plant expansions would be delayed and any considerable capacity expansion is not likely to come online earlier than 2021.”

Currently, the installed cement production capacity stands at around 45 million metric tonnes.  A number of cement makers envisaged output expansion as the industry witnessed a 5.4 percent surge to 40.9 million tonnes in sales during the last fiscal 2016/17 as local construction sector boomed to have broken its annual growth record of the past five years.  Local cement sales rose 10.4 percent to 36.4 million tonnes during the last fiscal, although exports sharply fell 22.8 percent to 4.5 million tonnes.

Naqvi said neighbouring China, despite having surplus capacity, would not dump its cement into Pakistan for infrastructure development under China-Pakistan Economic Corridor projects. Chinese cement would not be viable because of freight/transport costs, while Iranian cement is not a threat to the local substitute because of its inferior quality. 

“Therefore, no external player is likely to impact the market and utilisation ratios for locally-manufactured cement would remain high,” he added.

Maple Leaf’s official said the cement manufacturer is the most energy-efficient producer with the lowest cost of production.  Moreover, MLCF has commissioned its coal-fired plant, which would further bring costs down. 

“The company is also strengthening its distribution network and investing in product-branding, which has resulted in higher off-take,” Naqvi said. “Coal prices somewhat stabilised at around $90/tonne in international market. If coal prices surge beyond $100/tonne the price difference would have to be passed on to the consumers.”