Promising prospects of cement industry

The consumption of cement, a key construction material, has increased significantly over the past several years, thanks to a rise in the number of large-scale government development projects, urbanisation, and the growing real estate business across the country. 

According to the Bangladesh Cement Manufacturers Association (BCMA), cement sales reached a high of 33 million tonnes in 2018, up from 29 million tonnes in 2017. This is a record increase of around 12 per cent.

BCMA data shows that cement consumption across the country grew on average by 10–15 per cent in the last 10 years.

“There are 37 active cement factories in Bangladesh with a combined production capacity of 58 million tonnes per year against a demand for 33 million tonnes. This means the capacity exceeds the demand by about 43 per cent,” BCMA president Md Alamgir Kabir said recently.

Of the locally produced cement, the government uses 35 per cent, commercial developers use 35 per cent, and small individual buyers use the rest, according to BCMA.

From 2011 to 2018, the per capita use of cement increased by 97 per cent to stand at 187 kg. However, the country still lags behind the world average of per capita use of 563 kg.

Local companies hold 86 per cent market share

Development of the local cement industry started during the early 1950s. Till 1990, about 95 per cent of the country’s demand for cement was met by imports.

About 20 years ago, local entrepreneurs produced only ordinary cement using 95 to 96 per cent clinker.

But the situation has changed significantly, with local companies now holding 86 per cent of the local market share due to their competitive advantage in price and quality, shows BCMA data.

As many as 76 cement manufacturing companies have been registered. However, of them, 37 large-scale and small-scale companies are producing cement as of now.

Among these 37 companies, seven are listed on the share market and four are multinationals. The market was once dominated by foreign companies, but they are now facing intense competition from local businesses.

Two of the global cement groups—United Arab Emirates (UAE)-based Emirates Cement and Mexico-based Cemex—wound up their Bangladesh operations after failing to penetrate the market.

Among the 37 active market players, the cement industry is dominated by only 10 companies, including two multinationals, which hold around 80 per cent of the total market share, according to BCMA data. Lafarge Holcim now holds the second place following its acquisition of Holcim by Lafarge Surma.

According to On Field Investment Research (OFIR), the first independent research organisation dedicated to Global Building Materials based in London, the global demand for cement declined by 2.8 per cent in 2018, while Bangladesh posted 12 per cent growth in that year.

OFIR projects that in 2019, the global demand for cement might fall by 1.6 per cent, while BCMA predicts the annual growth of 10 per cent to continue at least for the next five years. Bangladesh is the 40th country in the world cement market at present.

Highly competitive market

There are 37 local and foreign companies in the country's cement sector. Shah Cement controls 13–14 per cent of the cement market, while 11–12 per cent is held by Bashundhara Cement and 10 per cent by Fresh Cement.

Leaders of BCMA say intense competition among the top companies and economic zones has made the cement market unstable.

Regarding the production capacity surpassing demand, Alamgir Kabir told the media that the large volume of cement production had helped reduce production cost. Besides, the government was implementing several mega projects, thereby creating a high demand for cement in the local market.

Besides, the government has started building concrete roads instead of using bitumen. The demand for cement will increase if the initiative extends nationwide.

Bellal Hussain Molla, executive director of BCMA, said the demand began to increase on the back of the government's big development projects and the expansion of private sector construction work. As a result, local entrepreneurs have made big investments in the construction sector.

“The local companies are supplying the lion's share of cement used in government and private infrastructure projects,” he said.

Higher tax adds to retail price

As the price of gas has been increased for industrial use, producers now have to pay Tk. 10.7 per cubic metre. To use captive power, they have to pay Tk. 13.85 per unit.

Besides, 5 per cent advance income tax and 5 per cent advance tax have been imposed on the import of raw materials for cement production along with 15 per cent value-added tax (VAT) at the supply stage. Together, they raise the cost of production by about Tk. 50 per bag of cement.

“The sum has become a cause for losses in the cement industry,” said BCMA president Md Alamgir Kabir.

At present, the investment in the cement industry is approximately Tk. 30,000 crore. Of that, Tk. 18,000 to Tk. 20,000 crore have come from bank loans. The investment will be at risk if the government does not take immediate steps to minimise the tax burden. Under the present circumstances, no company will be able to make a profit.

Alamgir Kabir also said the imposition of 5 per cent advance tax on the import of raw material for cement and 3 per cent source tax on distribution was having an adverse effect on the entire cement industry. The increase in tax had put the industry in jeopardy, he added.

He also said the government imposed 5 per cent tax on the import of raw material for other production sectors and manufacturing industries. But it has not set a minimum tax for them, he noted.

Cement export from Bangladesh falls by 17.1 per cent

The country's cement industry has earned export revenue of USD 4.08 million during July–November 2019 compared to USD 4.92 million earned in the same period last year.

This translates to a fall of 17.1 per cent. The export figure also includes a small amount of salt, stone, and related products, Export Promotion Bureau (EPB) data reveals.

The export value for cement fell 2.2 per cent below the target of USD 4.17 million set by the government for the first five months of FY19–20.

The EPB has set an export target of USD 10.5 million for the cement industry in FY19–20 compared to USD 14 million for the previous fiscal year. The actual export proceeds in FY18–19 stood at USD 10.41 million. So, the new target has been revised downward by 25 per cent due to continuously growing domestic demand, increasing competition, and other factors.

Most of the cement exported from Bangladesh goes to India, especially to its north-eastern states, say industry insiders. Bangladeshi cement is also popular in Nepal, Sri Lanka, and the Maldives.

MI Cement, the country's leading cement exporter, accounts for 50 per cent of the total exports. Shah Cement, Bashundhara Cement, Fresh Cement, and Premier Cement are also contributing to the export of the construction material.

EA

Promising prospects of cement industry

The consumption of cement, a key construction material, has increased significantly over the past several years, thanks to a rise in the number of large-scale government development projects, urbanisation, and the growing real estate business across the country. According to the Bangladesh Cement Manufacturers Association (BCMA), cement sales reached a high of 33 million tonnes in 2018, up from 29 million tonnes in 2017. This is a record increase of around 12 per cent. BCMA data shows that cement consumption across the country grew on average by 1015 per cent in the last 10 years. There are 37 active cement factories in Bangladesh with a combined production capacity of 58 million tonnes per year against a demand for 33 million tonnes. This means the capacity exceeds the demand by about 43 per cent, BCMA president Md Alamgir Kabir said recently. Of the locally produced cement, the government uses 35 per cent, commercial developers use 35 per cent, and small individual buyers use the rest, according to BCMA. From 2011 to 2018, the per capita use of cement increased by 97 per cent to stand at 187 kg. However, the country still lags behind the world average of per capita use of 563 kg. Local companies hold 86 per cent market share Development of the local cement industry started during the early 1950s. Till 1990, about 95 per cent of the countrys demand for cement was met by imports. About 20 years ago, local entrepreneurs produced only ordinary cement using 95 to 96 per cent clinker. But the situation has changed significantly, with local companies now holding 86 per cent of the local market share due to their competitive advantage in price and quality, shows BCMA data. As many as 76 cement manufacturing companies have been registered. However, of them, 37 large-scale and small-scale companies are producing cement as of now. Among these 37 companies, seven are listed on the share market and four are multinationals. The market was once dominated by foreign companies, but they are now facing intense competition from local businesses. Two of the global cement groupsUnited Arab Emirates (UAE)-based Emirates Cement and Mexico-based Cemexwound up their Bangladesh operations after failing to penetrate the market. Among the 37 active market players, the cement industry is dominated by only 10 companies, including two multinationals, which hold around 80 per cent of the total market share, according to BCMA data. Lafarge Holcim now holds the second place following its acquisition of Holcim by Lafarge Surma. According to On Field Investment Research (OFIR), the first independent research organisation dedicated to Global Building Materials based in London, the global demand for cement declined by 2.8 per cent in 2018, while Bangladesh posted 12 per cent growth in that year. OFIR projects that in 2019, the global demand for cement might fall by 1.6 per cent, while BCMA predicts the annual growth of 10 per cent to continue at least for the next five years. Bangladesh is the 40th country in the world cement market at present. Highly competitive market There are 37 local and foreign companies in the countrys cement sector. Shah Cement controls 1314 per cent of the cement market, while 1112 per cent is held by Bashundhara Cement and 10 per cent by Fresh Cement. Leaders of BCMA say intense competition among the top companies and economic zones has made the cement market unstable. Regarding the production capacity surpassing demand, Alamgir Kabir told the media that the large volume of cement production had helped reduce production cost. Besides, the government was implementing several mega projects, thereby creating a high demand for cement in the local market. Besides, the government has started building concrete roads instead of using bitumen. The demand for cement will increase if the initiative extends nationwide. Bellal Hussain Molla, executive director of BCMA, said the demand began to increase on the back of the governments big development projects and the expansion of private sector construction work. As a result, local entrepreneurs have made big investments in the construction sector. The local companies are supplying the lions share of cement used in government and private infrastructure projects, he said. Higher tax adds to retail price As the price of gas has been increased for industrial use, producers now have to pay Tk. 10.7 per cubic metre. To use captive power, they have to pay Tk. 13.85 per unit. Besides, 5 per cent advance income tax and 5 per cent advance tax have been imposed on the import of raw materials for cement production along with 15 per cent value-added tax (VAT) at the supply stage. Together, they raise the cost of production by about Tk. 50 per bag of cement. The sum has become a cause for losses in the cement industry, said BCMA president Md Alamgir Kabir. At present, the investment in the cement industry is approximately Tk. 30,000 crore. Of that, Tk. 18,000 to Tk. 20,000 crore have come from bank loans. The investment will be at risk if the government does not take immediate steps to minimise the tax burden. Under the present circumstances, no company will be able to make a profit. Alamgir Kabir also said the imposition of 5 per cent advance tax on the import of raw material for cement and 3 per cent source tax on distribution was having an adverse effect on the entire cement industry. The increase in tax had put the industry in jeopardy, he added. He also said the government imposed 5 per cent tax on the import of raw material for other production sectors and manufacturing industries. But it has not set a minimum tax for them, he noted. Cement export from Bangladesh falls by 17.1 per cent The countrys cement industry has earned export revenue of USD 4.08 million during JulyNovember 2019 compared to USD 4.92 million earned in the same period last year. This translates to a fall of 17.1 per cent. The export figure also includes a small amount of salt, stone, and related products, Export Promotion Bureau (EPB) data reveals. The export value for cement fell 2.2 per cent below the target of USD 4.17 million set by the government for the first five months of FY1920. The EPB has set an export target of USD 10.5 million for the cement industry in FY1920 compared to USD 14 million for the previous fiscal year. The actual export proceeds in FY1819 stood at USD 10.41 million. So, the new target has been revised downward by 25 per cent due to continuously growing domestic demand, increasing competition, and other factors. Most of the cement exported from Bangladesh goes to India, especially to its north-eastern states, say industry insiders. Bangladeshi cement is also popular in Nepal, Sri Lanka, and the Maldives. MI Cement, the countrys leading cement exporter, accounts for 50 per cent of the total exports. Shah Cement, Bashundhara Cement, Fresh Cement, and Premier Cement are also contributing to the export of the construction material. EA