As businesses and living standards accelerate in Bangladesh with growing improvement in infrastructure- the cement industry has been booming along with it.
Currently, more than 32 cement manufacturing companies, four of them multinationals, produce around 30 Mn 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.
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 as per the survey run by The Daily Star.
Cement Industry Background
The development of cement industry in Bangladesh started from early fifties. But Bangladesh used to import 95% cement from global market till 1990. In FY 1995, government gave permission for establishing cement industry in Bangladesh. Then some passionate entrepreneurs came to set up cement plants during 1997 to 2000. It opened a new era in this sector. In 1998 there were four dominants player in cement industry. They were-Meghna cement, Chatok cement, Eastern Cement, Chittagong Cement. Prior to inception, Bangladesh used to import cement from global market. As new players entered into the market with no participants, they tapped into the already existing huge demand for cement. The dependency on import lowered in the following years.
Major players and their market share
There are only 32 actively working cement factories in Bangladesh. Cement market is an oligopoly market as top ten market player has 81% of the total market share. Among the top 10 cement market players in Bangladesh, 8 are local and 2 are multinational. Shah Cement has the high market share of 14%. The next major player is Lafarge Surma Cement Limited which contributes 11.8% of overall cement market. There are only 6 multinational cement companies right now in Bangladesh.
In Bangladesh, multinational cement companies are facing fierce competition with local companies. They only hold 25-30% of the total market share. For the fierce competition, two global companies already divested their operation from Bangladesh. However, after the acquisition of Holcim by Lafarge Surma will restructure the industry in Bangladesh.
The total market cap of cement industry in Bangladesh is 98,347,488,062 taka which 3.5% share of DSE market capitalization. Only 7 companies are listed in DSE. Heidelberg cement has the highest production capacity among the listed companies in cement sector. Among them, Heidelberg Cement Bangladesh Ltd and LAFARGE SURMA CEMENT LTD are found in DS30. The stock of cement performs well in the first half of calendar year because of seasonality effect. The major cement manufacturers are importing the required raw materials including clinker, gypsum, fly ash and iron slag from abroad and using grinding technology to produce cement. At present, several local cement manufacturers procure clinker from Lafarge while most of the manufacturers import clinker from other countries. The import of clinkers has gone down by the last five years. In 2011-12, Bangladesh imported raw materials of 504 Mn USD. In 2016-17, the import of Clinkers is just about 476 Mn USD.
In our country raw materials of cement are not available. Almost all the raw materials of cement are imported and so there are massive risk due to interruptions like political uncertainty, currency fluctuation and supply chain problem. Around the world fives types of Portland cement are used. Conversely, only two types of cement are produced in Bangladesh known as CEM I and CEM II. CEM I is Ordinary Portland cement (OPC) with no SCM (Supplementary Siliceous Materials such as fly ash, slag, silica fume etc.). CEM II is the Portland Composite Cement (PCC) where SCM is added by replacing the clinker. PCC performs better in terms of durability and it requires less clickers compare to OPC. In Bangladesh PCC is used from 2003 and it was introduced by Crown Cement. At present, the ratio of production of PCC and OPC is around 95:5.
As cement industry is an oligopoly industry, so high price war exists in this industry. Only one to achieve market share is to reduce price. The standard price of one bag (50 kg) cement ranges from BDT 370 to BDT 410 per bag. The price is in declining trend as it drops by 5 to 6% last year. The price drops because Clinker Price per MT stood at on an average BDT 5,383 in the year 2012 which has fallen down to BDT 4,249 in the year 2016. The close competitor of Bangladesh is India and their average price of cement is about RS 300 which is equal to BDT 330. In the world market the average price of 50 kg cement is about 300 hundred tk. From there we can say that there is competitive disadvantage for Bangladeshi cement in the world market.
Demand and Consumption
The demand for cement has been increasing in Bangladesh in the last couple of years but still it is far below than that of many developing countries. The average per capita cement consumption in Bangladesh is only 190 kg while the demand for cement around the world is 500 kg. According to industry insiders, the annual demand for cement is estimated to be about 25 Mn tons in Bangladesh. But the installed capacity is nearly 50 Mn tons and the effective production capacity is more than 43 Mn tons. Yet some of the companies are expanding their capacity for meeting higher expected demand. Only in 2017 Aman and Crown have increased their production capacity. Overcapacity may lead to increase competition and price war among the market players.
Overcapacity may raise companies seeking new export. Bangladesh has started exporting cement from 2003. M.I. Cement Factory Limited was the first company to start exporting cement in Bangladesh. Only crown cement export 37% of overall exporting volume. At presently Bangladesh exports cement to India, Myanmar, Nepal, the Maldives and Sri Lanka. The major client of Bangladeshi cement is the Seven Sisters of India. But Bangladesh is losing its market because of low price of cement in India.
The average industry growth rate is about 9.6% in the past 15 years. The relationship between Gross Domestic Product (GDP) and cement industry growth is positive. When the GDP growth was 6%, then cement industry’s growth was 9.0 per cent. Now if the GDP of Bangladesh grows at 7% consistently, then cement industry growth will be 10% approximately. As Bangladesh governments put emphasis on green field investment so it is expected that the CAGR of will be 15% by 2018-2021. As Bangladesh is a developing country so we are in need of high investment in Greenfield. The present government is committed to develop infrastructure and there is also evident of increased allocations for development programs. The 7 mega projects are the Padma Bridge, Rooppur Nuclear Power project, Paira Sea Port; the coal fired large power projects of Matarbari and Rampal, Metro Rail and LNG terminal. The size of the annual development program rose to BDT 1,640,000 Mn in 2017-18, up sevenfold from BDT 220,500 Mn a decade ago. Bangladesh has also increased infrastructure investment over the years. The amount reached $6 Bn in 2016-17 from $2 Bn in 2011-12.
The construction sector of Bangladesh is passing an admirable period because of urbanization, improved living standard and increasing purchasing power. The demand for cement is closely linked with the growth of construction sector and real estate activities. The average growth rate of construction sector for the last five years is about 8.5% according to Bangladesh Bureau of Statistics. And the real estate is growing at a rate 4.35% per year. So it is expected that the cement industry will grow up by 13% for the next 5-6 year because of this two sector.
We can segment cement consumer into three major categories – individual home builder, real estate developer and government development project. In recent past individual home builder contributed major demand to the overall demand but for the implementation of government vision, a number of mega projects has taken. So the demand for cement in government development project is largest which constitutes about 45% of total demand for cement.
Issues Concerning this industry
In the last year cement industry face a hard time because of the price hike of raw materials, the depreciation of local currency and intense competition among participants. In 2017, the average price of cement went down by BDT 15 a bag despite a significant increase in production costs, according to industry insiders. The price of fuel and raw material increases because of surge in global fuel price. The value of local currency depreciates in terms of USD. A US dollar is now being sold at about BDT 84 which was 80 in the last year. So the importers need more money to import raw materials now. It will decrease the overall production in this sector.
Many countries can’t produce enough cement to meet their internal demand and they have to depend on import. As a country Bangladesh is self sufficient to meet local demand in cement sectors. The growth of this industry is envious. As we have overcapacity in cement, we are in need of opening new doors to export cement globally. We are in need of developing our backward linkage for cement production to sustain the market share in the world market.
Increasing growth of construction and urbanization has driven the demand for cement in Bangladesh. Owing to the urbanization, improved living standard and increasing purchasing power, the construction sector of Bangladesh is on a march. According to industry specialists, the outlook for cement in 2017-2021 remains promising with an expected compound annual growth rate (CAGR) of 15% mainly driven by the residential sector. Industrial construction taking place in economic zones are accelerating the growth. Major infrastructural projects are also in the pipeline to support economic growth agenda. Due to rapid pace of urbanization, industrialization, large-scale infrastructural and government’s development projects as well as construction of various commercial and residential buildings, demand for cement has markedly increased and the growth is expected to continue in future. The trend of demand for cement is expected to continue till FY 2035.