Cement consumption to rise on infrastructure projects
Cement consumption will go up in Bangladesh in the coming years on the back of a growing appetite for the key construction material from infrastructure projects as well as rapid urbanisation, an industrialist said.
Bangladesh is investing heavily in infrastructure development, especially in power generation, highways, bridges, buildings and telecommunications.
“If implementation of these large infrastructure projects takes place as per plan, the cement sector will grow substantially,” said Md Alamgir Kabir, president of Bangladesh Cement Manufacturers Association (BCMA).
He said the cement, steel and power sectors would certainly play a crucial role in achieving the government’s vision to become a middle-income country by 2021 and a developed country by 2041.
The construction sector will grow further riding on Bangladesh’s population density, life expectancy rise, rapidly arising economic zones, sizeable investments in socioeconomic development of mainly common people, booming agriculture, and thriving garment sector.
At present, per capita cement consumption in Bangladesh is about 195kg, but Kabir said it will not stay there for too long. “We hope per capita consumption of cement will touch the level of 250kg by 2024.”
With more than three decades of professional experience in both trading and manufacturing sectors, Kabir is the vice-chairman of Crown Cement Group, chairman of GPH Ispat Ltd and managing director of Crown Cement Concrete and Building Products Ltd.
Set up in 1994, MI Cement Factory Ltd, the parent company of Crown Cement Group, is one of the leading manufacturers of cement in Bangladesh.
Kabir said every year rains damage roads if they are constructed with bitumen. As a result, the suffering of the people and costs for reconstruction of roads goes up. Thus, the government has, in principle, agreed to go for concrete roads instead of bitumen roads.
“Once implementation of this initiative gets started, the demand for cement will increase substantially. Moreover, if the government lowers import duty on raw materials of cement and offers incentive to exporters, the sector will see further improvement.”
According to the entrepreneur, 2019 was not as glorious for the cement industry as it was expected in the beginning.
Manufacturers had intended to achieve growth of 10-12 percent in 2019, but the year might end with growth of about 6 percent on 2018, way lower than 16 percent posted in 2018. Relatively lower demand prevailed throughout the year except a few days during peak seasons.
“We foresee a cement growth of 6 percent in 2019 and after that it may continue to grow at 8 percent for the next five years,” Kabir said.
He said the cement industry has been facing a good number of challenges since the beginning of 2019. The market has already been oversaturated and yet the big players are on an expansion spree.
“It is predicted that the existing overcapacity may get further deteriorated with the implementation of expansion projects by large players in the next two to three years.”
He said the competition was so acute that it eventually turned into a price war situation among large players. But sometimes, it was difficult to pass on the increased production costs to customers due to the huge competition.
There are about 40 active cement factories in Bangladesh with a combined effective production capacity of 61 million tonnes per year against a demand for 33 million tonnes, meaning the capacity exceeds the demand by about 46 percent.
The market size of the sector is around $3 billion, or Tk 25,500 crore. Manufacturers have invested more than Tk 30,000 crore in the sector. Local companies are dominating the market.
Cement is consumed mainly by three segments of users: individual house builders account for about 40 percent, developers or contractors about 25 percent, and public sector projects the rest 35 percent.
The real estate sector, which covers individual house builders and part of the developers or contractors segment, consumes a major portion of cement.
But for the last seven to eight years, the real estate sector has been facing various difficulties, which include scarcity of land in urban areas, suspension of gas connection for households, and higher interest rate for home loans, Kabir said.
Besides, exorbitant property registration fees are also considered as one of the major impediments to the further growth of the sector.
Kabir said the implementation of government construction projects, irrespective of size and volume, mostly get delayed due to a host of reasons, such as non-disbursement of funds in time, delay in land acquisition, and a lack of efficiency in handling especially large projects.
The cement sector had also fallen into deep trouble for a “non-adjustable” clause incorporated during the imposition of a 5 percent advance income tax (AIT) and 3 percent source tax.
The sector, however, received a shot in the arm on December 19, when the National Board of Revenue cut the AIT on the import of cement raw materials by two percentage points to 3 percent for the sake of the local manufacturers.
“Although this reduction reflects that the government has realised the problem of this sector, 3 percent AIT is still a burden to the manufacturers and in fact, it requires a full waiver of tax,” Kabir said.
Other challenges facing the cement sector include the price hike of raw materials, port congestion that causes delay in unloading of raw materials, devaluation of the taka against the US dollar, and load restriction on the roads and highways.
According to Kabir, it will take at least five to six years to get rid of the unhealthy competition mainly arising from overcapacity. Under these circumstances, it may be unwise for large manufacturers to go for further capacity expansion so promptly.
Speaking about his own company, he said MI Cement Factory Ltd (MICFL) has gained popularity in all segments in general and individual house builders in particular. Crown is a preferable brand to individuals who are house builders.
“Besides brand identity, consistent quality, smooth delivery, after-sales service and quick response to customers’ complaints have made Crown Brand Cement an attractive supplier to the important segment of customers.”
The MICFL has supplied cement to various large infrastructure projects such as Padma Multipurpose Bridge and Rooppur Nuclear Power Plant, to just name a few.
“Like in the past, we also aim to be a part of maximum iconic infrastructure projects of Bangladesh.”
Crown Cement pioneered in cement export in 2003 and paved the way for earning hard-earned foreign currency. It is the largest cement exporter in Bangladesh with around 50 percent market share of the cement export from the country.
The major export market of Crown Cement is Indian states of Tripura, Meghalaya and Assam.
“Although this segment is not that significant volume-wise, it has brought an extra surge to the industry. Crown has been maintaining its leadership position in the export segment since long.”
The company plans to go for an expansion project with one more vertical roller mill technology in 2020 and enhance market share to 8.5 percent from the current 7.5 percent.
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