Cement Industry of Bangladesh

Cement is a major ingredient for the construction industry. The process of producing
cement is highly energy intensive. The process requires procuring limestone, shell, and
clay. Afterwards, the raw materials are crushed and heated at a temperature in excess of
1,000 degree Celsius to produce clinker. For producing final grade of cement, clinker is
mixed with gypsum and grounded to fine powder. The cost of the whole process
amounts to 29% energy, 27% raw materials, 32% labor, and 12% depreciation. The
intensity of uses of cement depends on the rate of urbanization and the amount of
development projects undertaken.

Till 1990 about 95% of The development of cement industry in Bangladesh dates back to the early-fifties. Till
the country's demand 1990 about 95% of the country's demand for cement had been met through import.
for cement had been Some enthusiastic entrepreneurs ventured into setting up cement plants during 1997 to
met through import 2000 which opened a new era in this sector. 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. Currently local producers and
multinational companies have engaged in cement production to fulfill the local demand.

Product nature: There are several types of common cement which can be grouped
Only 65-80% of clinker into
is required to produce five general categories: Gray Ordinary Portland Cement, White Portland Cement,
PCC while 95% of Masonry or Mortar, Oil-well Cement and Blended Cement and three strength classes:
clinker is required to ordinary, high and very high. At present, the ratio of production of PCC and OPC is
produce OPC around 95:5. PCC gives equal strength and durability like OPC. Only 65-80% of clinker is
required to produce PCC while 95% of clinker is required to produce OPC. So, worldwide
PCC has become popular which requires less clinker.

Chinese market has Global Scenario: Fuelled by the extensive growth of Chinese cement market and
continued to be the cement markets of developing countries, the global cement market has experienced a
biggest driver of massive growth. According to IMARC group, the global market rose to volume of around
growth 5.0 billion tons in 2016 which was around 3.7 billion tons in the year 2012. Chinese
market has continued to be the biggest driver of growth alongside countries from North
America as USA has continued to recover from recessionary conditions that began in
2007. In the upcoming years India is expected to garner the fastest growth in terms of
demand for cement generating 8.0% growth rate per year in the next five years.

Average per capita Regional comparison: Although Per Capita Cement Consumption in Kg
cement consumption in the growth in the demand of cement has
the world is 500 kg while been increasing in Bangladesh, it is far
that of Bangladesh is below than that of many developing
only 120 kg. countries. So, there is a broader scope of
growth for cement sector of Bangladesh.
The ongoing construction projects are
contributing towards the growing demand
of cement but delaying in the Source: The Daily Star (December 18, 2016)
implementation of projects are curtailing the full potential and speed of the consumption
growth of cement. Bangladesh is one of the lowest consumers of cement products in the
world. Average per capita cement consumption in the world is 500 kg while that of
Bangladesh is only 120 kg. However, per capita cement consumption in Bangladesh
witnessed lucrative growth over the last few years.
 The major cement manufacturers are Clinker Import of Bangladesh (C&F) (Million
importing the required raw materials US$)
including clinker, gypsum, fly ash and
iron slag from abroad and using grinding 800 60.0%
40.0%
technology to produce cement. At 600
20.0%
400
present, several local cement 0.0%
200
manufacturers procure clinker from -20.0%

0 -40.0%
In the last two fiscal Lafarge while most of the manufacturers

2009- 10
2002- 03
2003- 04
2004- 05

2005- 06
2006- 07
2007- 08

2010- 11
2011- 12
2012- 13
2013- 14
2014- 15
2015- 16
2001- 02

2008- 09
years (2014-15 and import clinker from China, Hong Kong,
2015-16) the payment India, Indonesia, Japan, Korea, Malaysia,
Clinker Import (C&F) (Million US$)
for clinker import in Philippines, Singapore, Thailand and
terms of USD has Vietnam. Lafarge Surma Cement Ltd
dropped due to the produces approximately 10% of total
price fall of clinker in
clinker required for Bangladesh. Some manufacturers also use local limestone collected
the global market
Clinker &
Lime stone
74%
from Sylhet. Majority portion of imported fly ash is sourced from India; slag is imported
from China, India, Japan and Singapore while Gypsum is sourced from China, India,
Most of the Indonesia and Japan. The prime raw material of cement, clinker, is currently 80.0%
manufacturers import imported. Bangladesh has a scarcity of mineral resources, such as limestone, and hence,
clinker from China, is not capable enough to meet the demand for clinker. Clinker import has been raised
Hong Kong, India, quite significantly for Bangladesh.
Indonesia, Japan, Korea,
Malaysia, Philippines, Meanwhile in the last two fiscal years (2014-15 and 2015-16) the payment for clinker import
Singapore, Thailand and in terms of USD has dropped due to the price fall of clinker in the global market. Bangladesh
imports an estimated 10 million MT to 15 million MT of Clinker and Limestone

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Import Growth

Source: Bangladesh Bank Data

 In the year 2016 the from different South-East Asian countries annually. Bangladesh mostly relied on
clinker price per MT imported clinker in FY 2015 and also remained as the largest importer of clinker.
has fallen down by Global clinker price downward trend Clinker Price/MT
14.1% compared to has enabled the cement manufacturing
previous year companies tackle their cost of goods
sold quite satisfactorily. 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. In
the year 2016 the clinker price per MT
has fallen down by 14.1% compared to
previous year. However, the downward
trend in the global clinker price has
become a threat for Lafarge-Holcim
since Lafarge Surma supplies clinker to
other cement manufacturing Source: EBLSL Research
companies. Except Lafarge Surma, other cement manufacturing companies can capitalize
the advantage to cushion the price fall of cement.

Major players and competition: Currently, only 32 factories are in operation,

including four multinational companies. At present, 81% of the total market share is
held by top ten manufacturers. Among the top 10 cement market players in Bangladesh,
8 are local and 2 are multinational.
Market Share as of 2016

Source: Industry Players' Estimates and EBLSL Research (Bashundhara Group represents combined capacity of Meghna Cement and Bashundhara Cement)

Multinational cement companies are facing intensive competition with local companies
which are grabbing the top slot of the industry by operating in economy of scale and
with deft marketing strategy. MNCs now hold only 25-30% of the total market share. As
a result of failure to penetrate market, two of the global cement group, UAE based
Emirates Cement and Mexico-based cement manufacturer Cemex has recently divested
their Bangladesh operations. However, completion of acquisition of Holcim by Lafarge
Surma will reshape the industry dominance in Bangladesh as both the companies
already operates own business here. After the completion of acquisition, Lafarge-Holcim
nd
has the 2 place in terms of market share.

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Cement Company Promoter Products Brand Installed Capacity Post
(Million Expansion
MT/Year) Capacity

Shah Cement Abul Khair Group OPC & PCC Shah Cement 5.20 -
Bashundhara Group Bashundhara Group OPC & PCC Bashundhara Cement & King 5.05 7.05
Brand Cement
Lafarge Holcim Cement LafargeHolcim Clinker, OPC & Powercrete+, Supercrete and Cement: 3.40 -
PCC Holcim Clinker: 1.15

Aman Cement Aman Group OPC Amancem 3.75

Unique Cement (Fresh) Meghna Group OPC, PCC & Fresh Cement 3.60 -
Portland
Pozzolana
Cement
Seven Rings Cement Shun Shing Group OPC & PCC Seven Rings Cement 3.50 4.40
International Ltd.
Premier Cement Premier Cement OPC & PCC Premier Cement 2.80 5.80
Heidelberg Cement HC Netherlands OPC & PCC Scan Cement & Ruby Cement 2.38 -
Holding B.V (39.8%),
HC Asia Holding
GmbH, Germany
(20.86%)
Crown Cement M.I. Cement Mills Ltd. OPC & PCC Crown Cement 1.74 3.50
Madina (Tiger) Cement Madina Cement OPC & PCC Tiger Cement 1.69 -
Industries Ltd.
Akij Cement Akij Group Fly-Ash Free Akij Cement 1.20 -
Royal Cement Kabir Steel Group & OPC & PCC Royal Cement 1.00 -
BSA Group
Anwar Cement Anwar Group OPC, and Anwar Cement 1.00 -
Portland
Pozzolana
Confidence Cement Confidence Group OPC & PCC Confidence Cement 0.75 1.50

Eastern Cement Doreen Group OPC & PCC Seven Horse Cement and 0.45 -
Seven Horse Supreme
Mongla Cement Sena Kalyan Sangstha PCC Elephant Brand Cement 0.39 -
S. Alam Cement S.Alam Group PCC Minar Brand 0.36 -
Aramit Cement Aramit Group PCC Camel 0.20 0.70
Mir Cement Mir Group OPC & PCC Mir Cement 0.20 -
Mostafa-Hakim Cement Mostafa-Hakim Family OPC Taj Mahal Cement 0.17 -
Source: EBLSL Research **OPC= Ordinary Portland Cement; PCC= Portland composite Cement

Market segmentation: Cement consumer of the country can be

segmented by location, purchasing approaches,
behavior, seasonal variation, volume, brand
preferences and frequency personal characteristics Individual
Home
etc. Cement consumers’ characteristics can also be Govt. Builder
segmented into price sensitive customers, quality Development 25%
Projects
conscious customers and quality and price
45%
tolerance customers.
Real Estate
In broader aspects the customers of cement in Developer &
Bangladesh can be grouped into two large segments- Contractors
30%
private and public. Previously individual homebuilders
contributed the highest towards demand for cement but
Government’s recent mega projects have helped public Source: Annual Reports of Listed Companies
sector contributes the highest towards demand for cement.
Among the private sector the scattered domestic individual homemaker and commercial

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 real estate developers consumes 25% and 30% of the total cement production while the
public sector consumes almost 45% of the consumers segments.

Pricing: There exists high price war in the cement industry. To avail extra market share,
pricing is a key in the crowded market with excess capacity. Several national level
producers practice fluctuating pricing policy between regions to achieve competitive
benefits. Currently, the standard price of one bag (50 kg) cement produced by the
multinational & local companies range within BDT 370 to BDT410 per bag. The cement
Division-wise Demand
price in Bangladesh has been witnessing down trend since last three years and dropped
by roughly 5-6% per bag compared to the prices in 2016.
Reduction in raw material price along with stiff competition in the market has forced the
cement manufacturers to reduce the cement price. The raw-materials for cement
witnessed a downward price trend over the last four years. Among the key raw-
Maymenshingh

materials, Clinker witnessed 14.1% price fall in 2016 from that of the 2015.

Retail Price of Cement (50 kg bag)

Source: Annual Reports of Listed Companies

Source: EBLSL Research

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 Seasonal factors have high influence on fluctuation in retail price and following the
freight cost, cement price are not same throughout the country at a single point of time
though the price of cement produced by different player s in the industry are very close
to one another.

Factors driving the demand for Cement in

Bangladesh
Increasing growth of construction sector and increasing urbanization have driven the demand
for cement in Bangladesh
Owing to the urbanization, improved living standard and increasing purchasing power,
the construction sector of Bangladesh is passing a shining period. The demand for
cement is closely linked with the growth of construction sector as when the construction
sector found strong, then demand of cement increased. Construction and real estate
activities are the two major drivers of cement consumption.

Construction Sector of Bangladesh

2011-12 2012-13 2013-14 2014-15 2015-16
Size of Construction Sector (BDT bn) 447 483 522 567 617
Share of GDP at Constant Prices 6.80% 6.90% 7.00% 7.20% 7.30%
Growth Rate of size of Construction Sector 8.40% 8.00% 8.10% 8.60% 8.90%
Source: Bangladesh Bureau of Statistics

Real Estate Sector of Bangladesh

2011-12 2012-13 2013-14 2014-15 2015-16
Size of real estate sector (BDT bn) 476 495 516 539 563
Share of GDP at Constant Prices 7.20% 7.10% 7.00% 6.80% 6.60%
Growth Rate of Real Estate Sector 3.90% 4.00% 4.30% 4.40% 4.50%
Source: Bangladesh Bureau of Statistics
 Construction and real The growth of construction sector has been greater than GDP growth rate. Hence,
estate activities are the construction sector’s share of GDP has been growing gradually over the years. On the
two major drivers of other hand growth rate of real estate sector has been lower than GDP growth rate and
cement consumption correspondingly real estate sector’s share of GDP has been declining over the years. The
size of construction sector has been mainly accelerated by many Government
development projects that
have been undertaken URBAN POPULATION (% OF TOTAL)
recently.
The country’s increasing 33.5% 35.0%
34.3%
32.8%
urbanization has 30.5% 31.2%
32.0%

29.0% 29.7%
stimulated growth for the 28.2%
building materials and has
generated considerable
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
needs for cement. Urban
population has grown at a Source: World Bank Data
greater speed over the years. By the end of year 2016 the urban population stands at
35.0% of total population and the number will get bigger in the upcoming years.

In the recent budget Mega Projects are contributing towards increasing demand for cement
(2017-18) Government
has allocated BDT 306 Project Completion Date Cost
billion which is one-fifth Padma Bridge Year 2018 USD 3.7 billion
of total ADP for six mega Rooppur Nuclear Power Year 2020 USD 12.7 billion
projects Rampal Power Project Year 2018 USD 1.5 billion
Matarbari Coal Power Year 2022 USD 4.6 billion
Metro Rail Year 2019 USD 2.7 billion
Deep Sea Port Year 2023 USD 15.0 billion

Mega projects contribute heavily Allocation to Transportation and 10.95%

towards the increasing demand for Communication (BDT, bn)
372.89
10.14%
cement and there are some big projects 9.32%
that are ongoing and expected to
268.24
initiate soon to uplift the demand for
7.58%
cement in Bangladesh. In the recent 7.18%
190.57
budget (2017-18) Government has 6.19% 142.65
allocated BDT 306 billion which is one- 124.97
94.38
fifth of total ADP for six mega projects.
Budget allocation to transportation and 2011-12 2012-13 2013-14 2014-15 2015-16 ® 2016-17
communication has undergone a Transportation and Communication

Percentage of Budget
massive growth over the years and
hence, Government development Source: Bangladesh Budget
projects’ contribution towards demand for cement has turned out to be the highest in
the recent year overtaking individual homebuilders’ contribution.

Industry Concerns
Although a booming sector with great potentiality, cement industry has also some risk
factors. Firstly, it is threatened by over supply resulting from huge capacity expansion by
almost all leading industry players. Roughly, 40% capacity is likely to be added to currently
capacity by the end of the next year. However, since it takes 2-2.5 years to build a cement
plant, it is likely that before completion, demand could decrease or stagnate, or the capacity
additions could exceed demand. If the demand does not go up in line with the capacity
enhancement, there will remain a huge surplus capacity of cement production

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 If the demand does not in the coming years. This can lead to a fall in cement prices, and the industry could face a
go up in line with the downturn, leading to reducing operating rates or shutting down capacities.
capacity enhancement, Secondly, almost all raw materials of cement are imported, if the supplies of the same
there will remain a huge are cut-off due to adverse political cause or other disturbance, the industry may face
surplus capacity of serious challenges, even the risk of shut down. Besides, following the high contribution
cement production in the of raw materials in the cost structure, any movement in the price of clinker and other
coming year raw materials will eventually affect the profitability and performance of the cement
manufacturer. Finally, exports also predict some problems in the future. India was reliant
on imports from Bangladesh for a number of products including cement, especially for
its seven sister regions.

Fall in inward remittance has posed a threat to the cement industry as individual
homebuilders’ ability to spend on construction has declined correspondingly
By the end of 2016-17 the With fall in remittance from the gulf
total inward remittance region, concern has been raised. Demand Total Inward Remittance
stood at USD 12,769 mn for cement may see a downturn due to
which was USD 14,931 low remittance which is a major source of
mn in the previous FY. income for individual homebuilders.
Inward remittance has fallen down
sharply in the FY 2016-17. By the end of
2016-17 the total inward remittance
stood at USD 12,769 mn which was USD
14,931 mn in the previous FY.
The fall in the inward remittance poses a
threat for the cement industry. As
individual home builders is one of the Source: Bangladesh Bank
major contributors to cement demand,
fall in inward remittance may curtail the overall demand for cement. The demand for
cement in the rural areas will also fall in effect as previously demand for cement was
fuelled by rural individual homebuilders. Unless the inflow of remittance regains its
bright days, the cement industry may get hurt badly.

National Election to be held by the end of 2018 or in the beginning of 2019 is a critical
time for cement industry
Construction The year 2018-19 may remain critical as national election is to be held by the end of
sector is highly 2018 or in the beginning of 2019. As construction sector is highly sensitive to political
sensitive to situation, overall dynamic of cement industry may get affected by the uncertainty that
political situation may loom over the national election period. The uncertainty over political condition
during election period is a major concern for the cement industry.

Industry outlook
The outlook for cement The future potential of the country’s cement industry is strong. According to the industry
in 2017-2020 remains specialists, the outlook for cement in 2017-2021 remains promising with an expected CAGR
promising with an of 15% mainly driven by the residential sector (Annual reports of listed companies). Growing
expected CAGR of 15% housing up-gradation among individual homemakers is driving the major contribution in
mainly driven by the cement consumption. Industrial construction taking place in economic zones are also
residential sector accelearting the growth. At the same time, major infrastructural projects are also in the
pipeline to support economic growth agenda. Due to rapid pace of urbanization,
industrialization, large-scale infrastructural and Governmental development projects as well
as construction of various commercial and residential buildings, demand for cement has
markedly increased and the growth is expected to be continued in future. The trend of
demand for cement is expected to continue till FY 2035.