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Local cement companies thriving over multinationals

  • Published at 11:59 pm November 11th, 2018
Cement factories
Photo: Syed Zakir Hossain/Dhaka Tribune

Currently, more than 32 cement manufacturing companies, four of them multinationals, produce around 30 million tons of cement per annum

Large government infrastructure projects and increased urbanization are boosting the local cement industries, as the sector has been growing more than 12.50% in the last five years, according to multiple studies and sector people.

Currently, more than 32 cement manufacturing companies, four of them multinationals, produce around 30 million tons of cement per annum.

Local companies hold more than 80% of market share, beating the multinationals by their attractive prices and quality.

Higher per capita incomes and sustained period of political stability helped grow the sector amid huge construction works in both public and private sectors, studies observed.

“Demand for cement has registered a robust the Compound Annual Growth Rate (CAGR) of 12.67% over the last five years. This is significantly higher than the country’s GDP growth, according to a recent study of LankaBangla Investment Ltd.

Average per capita cement consumption in the world is 500kg while that of Bangladesh is only 120kg, the study said referring to a World Bank.

According to another study of Lafarge Surma Cement, nearly 40% of total cement used in a single year is consumed in the construction of private homes followed by 33% in government buildings and infrastructure, 24% is used to build real estate and commercial buildings.

 The remaining 3% cement is used for other purposes, said the study.

“A sustained period of political stability has provided stable and growth supportive environment,” said the report of LankaBangla Investment Ltd.

“Increased urbanization has been a key factor in the rise of the cement industry. Furthermore, higher per capita incomes have resulted in greater affordability while changing lifestyles have resulted in more nuclear families. These factors have contributed to consistent rise in the demand for construction materials such as cement.”

Large government infrastructure projects have sustained the growth in cement demand amid a slow real estate recovery, it further said.

People involved in the cement sector said large government infrastructure projects have shot the demand for construction materials, including cement.

In  a  recently  surveyed  report  by  the Cement  Manufacturer’s Association, it has been found that there  is  production  capacity  of  40 million tons per annum, whereas actual production is hovering around 32million tons.

The machinery, equipment and manufacturing sites are not being utilized fully by the cement manufacturing companies. On an average the utilization rate by these companies is currently around 75-80%, the survey said.

The sector-related people say companies could not reap benefits of lower clinker prices due to the domestic price war. For  the  production  of  cement,  two types of material are required -- calcareous  material such  as  limestone,  chalk,  etc.,  and the another  is clay,  which are extracted from quarries. 

Limestone is the primary raw material for producing cement clinker. There are also other raw materials used in the cement industry.

Bangladesh  depends on imports and  it  is  one  of  the largest  importers  of  clinkers  globally.  Of  the  32  cement  producers  that  are  currently  in  operation,  only  two  have  clinker  production  facilities  in  their  own  plants.  One  is Chhatak  Cement  Factory  Ltd,  a  government  owned  company,  with  limited  production capacity and the other is  LafargeHolcim Bangladesh Limited. 

Out of seven listed companies in the premier bourse, six are listed in the ‘A’ category, meaning the companies regularly provide dividends to shareholders. The remaining one listed firm - Aramit Cement Limited fall under the ‘Z’ category.  

The cement sector contributed 2% of the total turnover of the Dhaka Stock Exchange (DSE) in the last month, compared to 2.49% in September, 1.06% in August, and 1.41% in July, according to DSE data.

The listed Cement sector companies are Confidence Cement, Heidelberg Cement Bangladesh Ltd, LafargeHolcim Bangladesh, Meghna Cement Mills, M.I. Cement Factory (Crown Cement), Premier Cement Mills and Aramit Cement Limited.

Currently, only 32 factories are in operation, including four multinational companies.  At present,  81%  of  the  total  market  share  is  held  by  top  10 manufacturers. Among the top 10 cement market players in Bangladesh, eight are local and two are multinationals. 

Multinational cement companies are facing intensive competition with local ones which are grabbing the top slot of the industry by operating along the economy of scale and with deft marketing strategies. Multinationals now hold only 25-30% of the total market share, industry sources said.

As a result of failure to  penetrate  the market,  two  of  the  global  cement  groups,  UAE  based  Emirates Cement and Mexico based  cement  manufacturer Cemex  have  recently  divested  their Bangladesh operations. However, the acquisition of Holcim by Lafarge Surma will reshape the industry dominance in Bangladesh in the days to come as both companies already operate their own businesses in the domestic market, sector people said.

After the completion of acquisition, Lafarge Holcim has the 2nd place in terms of market share.

Another recent study by EBL securities revealed that Shah Cement holds 14% of the market share, while Lafarge Holcim holds 11.8%, Bashundhara Group 9.1%, Seven Rings Cement 8.1%, Heidelberg Cement 8%, Premier Cement 6.6%, M.I. Cement (Crown Cement) 6.6%, Fresh Cement 6.5%, Akij Cement 4.2%, and  Confidence cement 2%, according to the study.

The sector-related people say Bangladesh is a populous country. On the other hand, the country’s economy continues to grow steadily. Therefore, construction of multi-storied buildings across the country is going on in full swing.

Urbanization in various cities including Dhaka is increasing. Construction of major infrastructure mega projects including the Padma Bridge, Metro Rail and Dhaka Elevated Expressway is boosting the demand.

 Further, the use of cement in the villages is increasing more than urban areas, cement traders said.

“Foreign remittance has been playing a vital role that encourages rural people to construct buildings for their living,” a trader said.

Belal Hossen, executive director of the Bangladesh Cement Manufacturers Association (BCMA) told the Dhaka Tribune: “The cement sector is growing day by day as demands keep soaring. At the same time, foreign currency earning is also increasing through limited scale exports.”

Terming the industry mostly dependent on import for its raw materials, the association leaders urged the government to lower tariffs for further expansion of the sector. 

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