Growth prospects for Pakistan’s cement and steel industries

[dropcap]C[/dropcap]ement is the essential constituent of construction activity. Presently, the total installed capacity of 28 cement plants is 17.312 million tonnes in Pakistan. The industry witnessed a steady growth rate of 8 percent until 1994. Before 1994, the country was facing shortage of cement that was met through imports. In 1999, the country’s total production was estimated at 10.384 million tonnes. In the past three years the cement industry has been facing a crisis situation. With a share of Rs40 billion per year in the GDP, the cement sector contributes Rs15-20 billion per annum to the national exchequer. Pakistan offers great opportunity to capture regional markets due to its geo- strategic location on the confluence of South, West and Central Asia.

The main Pakistani cement manufacturers including Bestway Cement, Lucky Cement, and D. G. Khan Cement have set up new plants for further expanding their production capacities. Pakistan produces four types of cements and the raw material — gypsum, limestone, clay/shale — used for cement manufacturing is found in abundance in the country. The country is set to rock the world cement market by making its entry in a big way. The country plans to further enhance its production capacity and fully explore the major markets including India, Russia, UAE, Yemen, Sudan, Ethiopia, Algeria and other North African countries for the purpose.

Owing to the shortage of cement in the region and rising demand from India and North African countries, Pakistani cement manufacturers are poised to benefit from the current cement boom in terms of high export price.

The current demand-supply situation in the cement sector indicates excess cement production capacity. During the past one decade, the cement manufacturing has been buoyant in Pakistan and the industry has shown tremendous growth in recent years. Owing to the increasing local and export demand due to rising construction activities and regional cement shortages, Pakistani cement sales jumped to exceptionally high. The cement export to Iraq, Iran, India, Afghanistan and UAE witnessed an exceptional growth in the past one decade. Major markets for Pakistan cement exports were Afghanistan and the UAE. The remarkable performance of cement sector was due to the enhanced installed capacity, which had more than doubled during last five years, as well as to the rise in local demand and strong external demand. Pakistan has already been supplying cement to Afghanistan for the last many years. It has been the key player and a traditional supplier of cement in Afghan market. The cement units in northern areas of the country continued to feed the Afghan market by supplying up to 2.5 million tons. Like Afghanistan, Pakistani exporters have been exporting cement to the war-torn Iraq where the demand for cement has been higher for reconstruction work.

At present, India and China are enjoying a robust position in the regional markets as both countries are able to offer competitive prices. The cement manufacturers in China and India enjoy state subsidies for exports. The subsidies lower their costs of production. Pakistan needs to offer local manufacturers the similar subsidies for exports to regional markets to make them competitive.

STEEL SECTOR

The country faces acute shortage of steel products for construction activity. The state-owned Pakistan Steel Mills (PSM) is running on the cash lifelines given from the government. The cash-strapped PSM is not in a position to meet even the current steel demand of around 6 million tonnes per year in the country. It produces up to 1.1 million tonnes of steel products per annum, meeting 16 per cent of the total steel demand of the country. The remaining 84 per cent is met through imports. Private companies import more than four million tonnes of raw materials. Critics say that the PSM has been turned into a loss-making entity from a profit-making company under the four years tenure of PPP-led government by prime minister Yousaf Raza Gilani and the president Asif Ali Zardari in the past, as it showed profits for consecutive seven-year right from 2000 to 2007 against their predecessor government of president General Pervez Musharraf. The mill’s production dipped from 82 percent in 2007-08 to 15 percent in 2011.

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Pakistan is endowed with huge iron ore deposits in Punjab and Balochistan. The country has over 780 million tonnes of iron ore, which contains 35 percent of iron. With proven resource of around 350 million tonnes, Kalabagh possesses the country’s largest iron deposits. Ironically, the PSM is based on 100 percent imported ore. It has outdated machinery, which produces expensive steel. Critics say that the country has so far failed to establish state-of-the-art mini- steel mills in areas near iron ore deposits.

There are hopes being pinned for high growth of cement and steel industry after the implementation of mega construction projects under $46 billion China-Pakistan Economic Corridor (CPEC). The rise in cumulative cement dispatches is solely attributable to rising export volumes as domestic demand has so far remained depressed. With CPEC, the domestic demand will witness a sharp surge. The country’s cement industry has the capacity to meet the rising demand of cement for infrastructure projects under CPEC plan. The cement sector will surely get a boost from the implementation of multibillion dollar construction projects under CPEC.

Both the cement and steel sectors are likely to get a boost from the tremendous construction activity generated by multi-billion dollar infrastructure projects planned under the CPEC). While Gwadar port is the essential part of the $46 billion CPEC project. No doubt, a huge investment in infrastructure promises a brilliant growth of cement and steel industry of Pakistan. It will not be incorrect to contend that the CPEC project is going to be a game changer for cement and steel sectors. The CPEC involves construction of highways, railways and energy pipelines connecting western China with Pakistan and the Persian Gulf.