As time passes, the world experiences development in all sectors. Development leads to urbanization, reflecting economic growth, which brings upon infrastructure development and construction. Cement is a major component in this chain. Hence, when dreaming about a futuristic world with tall skyscrapers, massive bridges and other concrete structures, we need to keep in mind that unless and until there is a great discovery of a substitute, without cement it will be impossible to see that future in reality.
Bangladesh is one of the fastest developing countries and is thus expected to have major infrastructure, housing and services development in the coming years. Thus, expecting a growth in demand for cement is considered logical. Since the liberation war in 1971, major urbanization and industrialization took place in the country, which led to a rise in demand for cement. As the companies saw an opportunity in the field, they undertook capacity expansion plans. However, multiple factors like, delay in the construction project of Padma Bridge, political unrest, economic slowdown and also the downfall in the real estate sector have greatly impacted the industry growth. By this way Cement industry is leading Bangladesh from the respect of infrastructure development.
The birth of the cement industry in Bangladesh dates back to 1994. The local demand was huge as the consumers substituted imported cement with local products. Later, in 2003 M.I Cement first started exporting (Crown Cement). Till now, several cement producers have exported their products to the seven sister zone & West Bengal of India, with a good potential to further accelerate the export volume.
Since, 1994, more than 120 companies have registered as cement manufacturer, of which 75 actually came into operation and the rest (smaller companies) were forced to shut down. The reason was mainly financial inability to compete with the national players, geographical disadvantage and utility supple shortage.
Apart from this, the sector experiences a seasonal demand cycle, where demand reaches its peak during the dry season (September/October to April/May), and falls during monsoon (May/June to August/September). During the peak season, the companies carry out multiple promotional activities, which includes giving incentives to the agents and employed executives if targets are met.
Though the cement industry is highly competitive, the bargaining power of the customers is unable to bring prices down as the producers struggle hard to achieve economies of scale. Production is heavily dependent on imported raw materials such as clinker, 80% of which is currently imported. Bangladesh lacks the mineral resources such as limestone and is unable to meet the demand of clinker by itself. However, among 30 cement producers only two have the facility to produce clinker. One of them is Chhatak cement Factory and the other one is Lafarge Surma Cement Ltd. Lafarge itself meets 10% of the clinker demand of Bangladesh.
Another major factor is power as production of cement requires huge supply of electricity. The majority of this supply is met by the national power grid. However, large companies are trying to use captive power plants to reduce the cost and ensure stable power supply.
Cement prices vary a lot in different locations, mainly due to the transportation cost associated. Holcim’s and Heidelberg’s products are the most expensive on average. However, Heidelberg only supplies PPC. On the other-hand Meghna sells at a much cheaper rate compared to the others. Prices are lower in the central regions like Dhaka, Tangail and Mymensingh. Areas close to the factory are able to provide relatively cheaper products, such as Chittagong and Sylhet.
As the number of bags purchased increased, prices tended to go down. In 80% of the regions, prices went down from 50 bags onwards, by BDT 5 to BDT 10. When number of bags purchased exceeded 200, some prices across retailers decreased by about BDT 5. However, at this volume, the retailers would source directly from the dealers and bear the carrying cost, giving the customers an effective discount.
Though, the sector has experienced a falling growth rate over the past few years, it’s worth noting that the growth rate was still positive. Market insiders expect the industry to grow by 20 to 25 percent over the next few years (Cement Association 2015). Initiatives like undertaking the construction of the Padma Bridge and government’s plan to use RCC pavements in highways may boost the demand in future.
However, newly formed giants like LafargeHolcim, and Heidelberg Cement’s recent acquisition of Italcementi, might seriously disrupt the market affecting the already competing market players, who are still surviving by charging marginal costs. On the other hand, presence of strong global players, including strong local brands are making it even harder for the smaller companies to survive
Further, the export market has little potential because Bangladesh doesn’t have a domestic source for raw materials (clinker), resulting in higher costs. Secondly, transportation cost is a major factor, since transporting voluminous products are expensive. For ensuring competitiveness, Bangladesh will have to focus on export to nearby regions, such as the seven sister states in India.
The country experienced huge demand for construction materials including the cement at the beginning of the 21st century. Currently, there are more than 125 companies incorporated as cement manufacturers in Bangladesh among these, 45 cement manufacturers are in operation, including 5 multinationals, along with 63 grinding plants all over the country, created a domestic market of more than 18 million metric tons a year. Many of these cement factories are fairly small as 85 per cent of total market share is held by top ten manufacturers. The Bangladesh cement industry enjoys the participation of the top four global cement producers: Lafarge, Holcim, Cemex and HeidelbergCement. The cement sector of Bangladesh has been considered as the 40th largest market in the world.
Out of total production, 73 per cent cement is consumed in Dhaka & Chittagong divisions and the rest in other divisions. The Governmental projects through ADP consume around 43 per cent of the total cement production. Around 85 per cent of cement is transported by road and the remainder by barge. Moreover every month on an average 15,000-20,000 MT of cement is being exported by the industry.
The total installed capacity of cement production of the industries of the country is about 33-35 million metric tons per year and the effective capacity is around 25-27 million metric tons per year. Most of the cement manufacturing plants in Bangladesh operate at 60-65 per cent efficiency. On the other hand, the current annual demand for cement in the country is around 18-20 million metric tons indicating the country has a surplus cement production capacity. Though there is over-capacity in the sector, the market demand is almost equal to the effective capacity during peak season.
Though in the short run the cement sector’s capacity is underutilized but it has been forecasted that the entire capacity might fall short of supply if the demand increases in line with the expected big infrastructural public projects of the country to be implemented in the future.Cement sector holds 4.83% share of DSE market capitalization which has been in downtrend since July. Reason behind the trend is 35.63% fall the price of LAFSURCEML over the period holding 68.47% of sector capitalization. Due to seasonality of the sector, most of the stocks performs better in the first half of calendar year. Sector return remains in negative zone with higher volatility than that of the market resulting underperformed relative to the market.