Cement industry to expand 15pc by 2023

KARACHI: Cement production in the country is likely to expand by more than 15 percent in two years as to date about five companies have announced their output with four more units to unfold their plans soon.

According to reports, Lucky Cement, Fauji Cement, Kohat Cement, DG Khan and Attock Cement would expand their production, cumulatively by almost 11.8 million tons. This expansion would expectedly complete by the second half of 2023. Moreover, near four more units would add another six million tons.

This would be the fourth expansion cycle of the cement industry.

Analyst Mehroz Khan of Pearl Securities said this expansion cycle was primarily based on various factors. The first was that the market was using up to 70 percent of the existing capacity. Second was the promising demand apart from organic growth, such as the construction of dams, Naya Pakistan Housing Projects (NPHP), as well as China-Pakistan Economic Corridor projects. Factor three was the TERF facility, which diluted the overall borrowing cost of the project, the analyst added.

Another important factor was the strong pricing on the back of the construction amnesty, as well as the NPHP. “Presently the industry is standing with a capacity of 71 million tons and as of now the utilisation is likely to be in a range of 70-80 percent. Capacity addition in the 4th expansion cycle is estimated at 18 million tons,” Khan added.

With the expansion to arrive in phases in the next two years, the sales of cement would likely rebound. According to the data, cement sales in FY20 were around 47.8 million tons while in the current fiscal year it has been estimated to reach nearly 58.6 million tons. The sales would grow to 64.4 million tons and by FY23 it would reach 70.1 million tons.

"We believe the growth in FY22 and FY23 is achievable due to aggressive work on construction of dams, low mark-up driven mortgage loans, banks compliances towards five percent of advances to construction sector and completion of grey structures under amnesty scheme /construction package by June 2023,” said Shankar Talreja, deputy head of research at Topline Securities.

The year 2023 would also be an election year, which generally keeps development spending at higher level, as government releases funds speedily to complete the outstanding projects.

“We believe new capacity will be much needed from FY23 onwards as industry would be running at its maximum utilisation,” Talreja said.

Pakistan’s per capita cement consumption based on FY23 estimates comes around 251kgs, 50 percent lower world average of 500kgs.