CEMENT

• SUMMARY

The cement industry of the country can be divided into two separate regions; North & South Zone. North Zone includes provinces of Punjab, Khyber Pakhtunkhwa, Azad Kashmir, Gilgit-Baltistan and parts of Balochistan while South Zone includes provinces of Sindh and Balochistan. There are 19 and 5 cement units in the North and South Region, respectively. Players in the North Zone represent around four fifth of the total rated capacity. Both North and South zones have their separate demand-supply dynamics.

Players operating in the South Market have the opportunity to tap a number of export markets thus providing greater room for revenue diversification. However, with a number of key export markets (Nigeria, Tanzania, Mozambique, Iraq, Ethiopia and DR Congo) for South players undergoing local capacity expansion, reliance on imports may reduce affecting dispatches, going forward.

Export of South players has already been impacted due to anti-dumping duty imposed by South Africa in FY15. Given the stronger local demand in North Zone, reliance on exports is lower; export potential for players in the North Zone is limited mainly to Afghanistan where influx of cheaper Iranian cement and limited construction activity due to withdrawal of allied forces has contributed to decline in exports.

• INVESTMENT OPPORTUNITIES

In Pakistan, infrastructure projects and the housing sector are the key drivers for consumption of cement. Going forward, consumption of cement from these two sectors is projected to increase.

Increasing urbanization with urban areas having lower number of people per household vis-à-vis rural areas creating additional demand for housing units

New affordable mega housing projects (Bahria Town, DHA, and LDA City)

Infrastructure projects worth $9.8b are planned to be undertaken under China Pakistan

Spending for infrastructure projects as per allocations made under Public Sector Development Programs particularly for construction of dams, roads and bridges.

Large infrastructure projects include Gwadar Airport, Gwadar Deep Sea Port, Hydropower project of around 10,000MW capacity and Karachi-Lahore Motorway.

• STATISTICS

Given the strong local demand, proportion of local sales in total dispatches has increased from 75% during FY13 to 84% during 9MFY16.

Net sales of the sector depicted a growth of 4% during FY15 on the back of higher dispatches while retention prices remained around prior year level.

Gross margin for the industry improved to 38% (FY14: 36%) for FY15 and have ranged between 30%-45% for major players.

• FDI POLICY