Neighbours in the East

India

Cement production in India has doubled over the past five years, buoyed by strong economic growth and sustained government infrastructure investment. This, together with growing private investment in residential and commercial property development, has created the current construction boom, boosting demand for high quality cement in major cities countrywide.

India remains largely unaffected by the international economic downturn as the country races to catch up with other fast developing Asian countries. The rapidly expanding cement industry has already exceeded some of the government’s ambitious 11^th India Plan (2007 – 2012) cement sector targets, which include a near doubling of production capacity and a 90% rate of capacity utilisation.

The government’s working group for the cement industry, chaired by the Secretary of the Ministry of Industry, has set a cement production capacity target of 298 million tpa and a cement output target of 269 million tpa by the end of the 11^th India Plan period.

According to the Indian Cement Manufacturers Association (CMA), high quality cement production capacity in the country is expected to reach 315 to 320 million tpa in the current financial year ending 31 March 2012 (FY 2011/12).

“The target was 290 million tpa by the end of this financial year, which we have already achieved. We expect the production capacity to increase up to 320 million tpa by the year end,” Cement Manufacturers Association Secretary General, N.A. Viswanathan, told journalists at the recent Cementech 2011 seminar in Chennai.

“Current consumption is almost 80% of the capacity. Demand is expected to grow at 8% to 9% this year,” he added.

India is the world’s second largest cement producing country after China, with 148 large and 365 mini cement plants, including public sector facilities. The large plants alone account for around 95% of the industry’s total installed capacity and employ a workforce of 120 000 people, according to the CMA.

India’s rapid cement industry expansion has focused on the construction of modern facilities incorporating the latest production technology. Almost 93% of the industry’s total capacity is based on eco-friendly dry process technology.

The Indian cement industry is currently adding about 40 million tpa in new cement production capacity. However, new cement plant capacity additions in FY 2009/10 were above average, reaching about 60 million tpa. Each additional million t of new capacity costs about Rs.5 billion (Rs.44 = US$1.00) to install, Viswanathan said.

Although Indian companies have provided the bulk of investment so far, foreign companies are also building cement plants in India. Foreign direct investment in the cement industry between April 2000 and February 2011 exceeds US$2 billion according to the Department of Industrial Policy and Promotion, with combined foreign investment in cement and gypsum products for the period standing at US$2.3 billion.

Pakistan

Meanwhile, cement production and consumption in Pakistan has fallen over the past 12 months due to the national economic slowdown, while lower export orders have also affected cement producers’ output.

Sales of Pakistani cement in the domestic and international markets totalled 31.4 million t in the recently concluded financial year ending 31 July 2011 (FY 2010/11), down 8% from 34.2 million t the previous year according to the All Pakistan Cement Manufacturers Association (APCMA).

Pakistan’s cement industry has grown quickly during the past five years, as new plants, totalling around 16 million tpa in capacity have been commissioned since 2007 when Pakistan’s cement capacity stood at 27.5 million tpa. The new capacity was built to supply the growing private housing construction market and various new government transport infrastructure schemes, including sea port and highway schemes.

Currently, Pakistan’s cement industry consists of 24 cement plants, capable of producing around 43 – 45 million tpa of cement. APCMA calculates that some 76% of the industry’s capacity was utilised in FY 2010/11, the lowest proportion recorded during the past eight years. The economic slowdown and security problems in some parts of the country have caused cement demand to fall.

Domestic sales of cement have been affected more than exports during the past year, with some 22 million t of cement supplied locally in FY 2010/11, a 6.7% drop from 23.5 million t the previous year.

Cement exports have also fallen over the past year, with cement manufacturers blaming lower exports on the government’s failure to pay a promised inland freight subsidy to cement manufacturers shipping from inland cement plants. Exports fell 1.7% in FY 2010/11, hitting 9.4 million t, down from 10.6 million t the previous year.

Around 85% of Pakistan’s cement capacity is located in the north of the country where 19 cement plants, totalling 36 million tpa in capacity, are in operation. A number of the plants export to neighbouring Afghanistan, which is Pakistan’s largest export market, taking 4.7 million t in FY 2010/11: up around 18% from 4 million t the previous year.

Although the northern region is Pakistan’s largest cement consuming region, the cost of transporting cement to Karachi and other ports in the south is preventing northern cement plants from exporting their surplus capacity. Currently Pakistan’s five southern cement plants, totalling 7 million tpa in capacity, are the only plants that export cement by sea due to their location near sea ports.

Apart from Afghanistan, northern cement plants’ large potential export market is neighbouring India. But while India is Pakistan’s second largest export market, taking 590 000 t in FY 2010/11, the Indian government’s regulations, limiting imports from Pakistan to shipments by sea or rail, continue to act as an import barrier.

For the moment, Pakistan continues to press for India to accept road delivery of cement imports across the northern border. However, increased access to the Indian market is opposed by Indian cement manufacturers who fear additional competition.

Meanwhile, APCMA is lobbying the Pakistani government to release the inland freight subsidy promised two years ago covering transport from cement mills to southern seaports, which would allow northern cement plants’ bagged and bulk cement to become competitive in overseas markets.

Although there is no sign of the subsidy being paid at present, the government has increased assistance to the cement industry recently by reducing the Federal Excise Duty on cement by Rs.200/t and by reducing GST on cement from 17% to 16% in the recent budget. 

This is an abridged version of the full article from David Hayes, which was published in the October 2011 issue of WORLD CEMENT, available for subscribers to download now.

Read the article online at: https://www.worldcement.com/asia-pacific-rim/27092011/neighbours_in_the_east/