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    Cement in Bangladesh: Building a Concrete Future

    LightCastle Analytics Wing

    Bangladesh is on its way to creating a solid concrete foundation for its future through various mega projects aiming to develop the nation’s infrastructure. With more than $3.5bn budgeted in FY19 for the 7 infrastructure mega projects including bridges, rail lines, power plants, and a metro rail [2], the cement market in the country looks to be a bullish market. Besides these large scale projects, however, a higher income per capita for the greater population also has led to greater consumption as building personal homes, a somewhat tradition of Bangladeshis, has become more affordable. Developments in real estate and commercial/public institutions have also contributed to consumption. An increasing number of migrants traveling from rural areas to the big cities for opportunities of better education, jobs, and wages, increasing urbanization in the country is also fueling greater growth in the industry.

    Growing Despite Global Decline

    According to On Field Investment Research (OFIR), global demand for cement declined by 2.8% mainly due to a fall in consumption in China, which also produces 60% of global supply [4]. Outside China demand increased by 3.2% [4]. Forecasts for 2019 are uncertain, mainly due to uncertainty revolving around US China trade war and speculation certain markets in North America and Europe are nearing economic cycle peaks [4]. OFIR estimates in 2019 global cement demand including China will fall by 1.6%, and grow 2.3% excluding China, with majority of growth fueled by emerging countries in Africa and Asia.

    The cement industry in Bangladesh has been showing double digital growth over the last 5 years. The nation currently consumes less that one fourth of the world’s general consumption of 500 kg cement per capita [1], but looks to be rapidly closing the gap. High growth in this sector is further reflected considering Bangladesh is one of the largest global importers of clinkers.

    Market Fundamentals

    Of the 5 types of Portland cement used in the world, Bangladesh uses Ordinary Portland Cement (OPC) and Portland Composite Cement (PCC), with the former composed 95% of clinker and latter 65%-80% [8]. As a result PCC has been gaining popularity in the country due to its cost effectiveness, low environmental impact, and versatility in various applications. The cement sector in Bangladesh is heavily influenced by seasonality due to Bangladesh’s subtropical monsoon climate. September/October to April/May are peak seasons with demand declining during May/June to August/September, with activity of varying depending on the duration of the rainy season. Over the past 5 years, the industry has seen a compound annual growth rate (CAGR) of 12.67% [1], significantly greater than the country’s GDP growth even considering future targets by the government set at 10%.

    However, the market is highly dependent on imported goods required for production including oil, clinker, limestone, and gypsum, and as a result also carries a considerable risk in foreign exchange rates. Of the main imported goods required for production, clinker alone comprises of 60-70% of the total materials used. Bangladesh mainly sources clinkers from China, Thailand, Vietnam, and Malaysia. High cost of logistics has also been a major cost driver in the past and has only been on the rise as government policy has reduced the allowed load of trucks by half to reduce pressure on the roads.

    According to a survey report by Bangladesh Cement Manufacturers Association, Bangladesh currently has a production capacity of 54 Mn MT [10], producing only 32 Mn MT with overall operations utilization at around 80% [1]. 2018 saw the market’s highest sales of 33 Mn MT. Currently 82% of the local demand for cement is met locally, with imports making up for the gap.

     

    Challenges & Prospects

    The cement industry currently faces challenges of low utilization of resources, a growing overcapacity, as well as sensitivity to prices of raw material and energy required for production. The market is also highly sensitive to changes in foreign exchange rates as majority of fuel/raw materials are imported. Recently the devaluation of the taka against USD (from Tk 80/USD to Tk 85/USD [10]) further raised costs in 2018 causing manufacturers to raise their prices for the first time in 6 years [5]. Costs of production are further exacerbated due to government policy of allowing less truck loads to reduce pressure on roads. This has in turn pushed producers to turn to barges for transport on water to reduce costs. Although producers are seeking to transport cement and raw materials by boat, an inadequate supply of barges hinders progress. All together, these factors are contributing to operational inefficiencies despite measure taken by producers to reduce costs, such as strategically locating facilities to reduce high transportations costs.

    Despite the many challenges at work, the cement industry has recently announced record sales in 2018, due to the increased consumption in rural and infrastructure projects. This year sales of 33 Mn TT took place, a 12% growth in consumption [10]. Exports to India have also been on the rise with a 24% growth during July 17 to May 18 according to Export Promotion Bureau [11].

    Competitive Landscape

    Currently in Bangladesh there are 32 cement manufacturing companies of which 7 are currently listed and 4 are multinationals [1]. 30 Mn MT of cement per annum is being produced with local companies holding 80% of the market share due to their competitive advantage in price and quality [1]. Despite the many market players, the industry is dominated by 10 major companies of which only 2 are multinationals, one (Lafarge Holcim) of which is second in market due to a recent acquisition [1]. Surprisingly, although 2 global cement companies, Emirates Cement and Cemex are divesting their operations, a Saudi business firm is soon set to enter the market in the near future [3]. MI Cement has also recently announced an expansion set to increase production capacity 76% by 2021 from a current 11,000 tonnes per day to 19,400 [9].

     

    The Way Forward

    Prospects for overall growth in the sector is bright for the country in terms of increasing demand due to:

    • urbanization,
    • real estate development, and
    • government projects,

    however, uncertainty in price fluctuations due to imports of raw materials, fuel, logistics, and foreign exchange may get the better of the industry. Competitors are also expanding their capacity despite having unutilized facilities in anticipation of increasing demands. It is almost certain without a doubt that growth in this sector will continue, however, a question of profitability in terms of rising costs must be addressed for the industry to further flourish. In the same way that a large majority of cement producers have their own private road transportation, we may see an increase in barges for water transportation to reduce costs. New technologies are also being adopted in order to improve operational efficiencies to not only reduce wastage in the industry but also reduce the amount of clinker required for production without sacrificing quality. This is especially important in the future as new players enter the market, and competitors seek greater profits in a current situation of price wars between competitors.

    Mohammed Shehab, Junior Associate at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected]

    Bibliography

    This article was originally published here https://databd.co/stories/cement-in-bangladesh-building-a-concrete-future-1451

     

    LightCastle Analytics Wing is the research division of LightCastle Partners. It is tasked with producing periodic reports on the different sectors of the economy, analyzing trends in markets and making methodical, thorough and intelligent analysis to improve strategy and drive business growth.