Local cement plants in mad race for capacity expansion
Multinationals stay on the sidelines
Local cement firms are pouring billions in new plants in an investment bonanza never seen in the sector, eclipsing their giant foreign rivals in a fierce battle for control of one of the fastest growing construction markets.
Led by Shah, the largest cement manufacturer, the companies are installing new clinker grinding plants worth around 20 billion taka that will double the country’s production capacity to over 30 million tonnes.
They are bolstered by fact that the cement sector has been growing at a record 20 per cent year-on-year since 2009 and near-freezing of investment by five multinational cement giants who operate here, officials said.
Company executives said if the boom continues, Bangladesh is going to be the world’s largest clinker importer by 2015 with demand driven by home builders, individual house owners and infrastructures.
“I’ve never seen such a scale of investment in cement sector in the past one decade,” said Abdus Sattar, who installs cement plants in local factories.
Sattar who hardly had holidays in the last six months now has a bulging order from six companies and expect to land few more in the next couple of months.
“There is a mad-race going on between the local cement companies. All the big and medium sized firms are bringing in large plants with per-day production capacity ranging between 3,000-4,000 tonnes,” he said Owned by the country’s top conglomerate, Abul Khair Group, Shah has brought in a 7,000 tonne daily capacity plant this year, which would bring its total daily production to 14,000 tonnes by early 2011.
Basundhara, whose investment was frozen during the caretaker government, is setting up four new plants outside the capital and at Mongla, which will take its capacity to more than that of Shah.
Medium-sized companies like Seven Circle, Fresh, Premier, Crown and Diamond have over the last six months ordered new plants to boost production, said a top official whose company sold machines to these firms.
He said smaller firms scattered nationwide like Madina, Metro, Royal, Aramit, Dubai Bangla, Doel, Olympic have also taken the fight to their more illustrious competitors by doubling or trebling their capacities.
“If every thing goes according to its plan, we see Basundhara emerging as the country’s largest cement producer by end of 2011. They may eclipse Shah provided they succeed in marketing,” he said.
Shah controlled 15 per cent of the country’s 13 million tonnes annual cement market in 2010 and the new plant would take its installed capacity close to three million tonnes, according to a report of a multinational cement company.
Company executives said a 20 per cent annual hike in cement use in the past two years have compelled the factories to scale up production. They also forecast a big jump in demand due to forthcoming investment in infrastructures.
“If the government goes ahead in building elevated expressways, the bridge over the Padma, new bridges over Meghna and fly-overs, there will be a massive spurt in demand,” said Amirul Haq, managing director of Premier Cement.
Premier has bought Chittagong-based National Cement for 800 million Taka and is adding another 4,000 tonne daily capacity new plant outside Dhaka to position itself for the upcoming bonanza.
Ramakanta Bhattacharya, a director of Heidelberg Cement Bangladesh, the owner of Scancem, said 75 per cent of the demand is still driven by individual house owners who are investing their savings in new constructions.
“Our estimate is that individual house owners will remain a key driver of growth until 2015 when we expect Bangladesh to be the largest import of clinker in the world,” he said.
Bhattacharya said multinational companies have almost frozen new investment in the past two years because of the worst global recession since the Second World War.
But he added that his company would add a 750,000 tonnes per annum capacity grinding plant in Chittagong next year in a bid to keep its number two position in the local market.
Others like Holcim, La Farge and Cemex — all ranked in the top five companies in the world — are monitoring demand-side development, said an official.
“We want to see how the demand holds out. Gas and power crisis still remain key barrier to new investment,” said a top executive of a multinational company.
He admitted that local companies having more confidence in the country’s future growth than the multinationals had overshadowed their foreign rivals in the past few years.
“It shows how far Bangladeshi investors have treaded in the past one decade,” he said.
Industry insiders said uncertainty over La Farge’s fate might have prompted local cement plants to go for major capacity expansion in the backdrop of growing demand for cement in the country. La Farge has withheld new investment for quite sometime as it is awaiting Indian Supreme Court verdict on its limestone extraction plant in the state of Meghalaya.
The last time Bangladesh saw investment boom in cement sector was in 2000-1 when top multinationals and their local counterparts poured around six billion taka in new plants, according to the industry.