‘Market glut? Idle kilns? Bangladesh's cement giants face a double bind. Can innovation pave the path to a stronger future?’
The ubiquitous gray powder that binds our infrastructure together, cement, finds itself in a curious predicament. Despite being the bedrock of construction and development, the global cement industry is grappling with a double whammy: market saturation and low utilization. This perfect storm is squeezing margins, forcing consolidation, and raising questions about the future of this crucial sector.
Market Fundamentals
Bangladesh employs Portland Composite Cement (PCC), which is composed of 65–80% clinker, and Ordinary Portland Cement (OPC), which is composed of 95% clinker, out of the five varieties of Portland cement used worldwide. Due to Bangladesh's subtropical monsoon environment, the cement industry in the country is significantly influenced by seasonality.
Market Saturation: A Concrete Ceiling
Rapid infrastructure growth in developing nations like China, India, and Bangladesh led to a boom in cement production, but this expansion has recently faltered. Urbanization has slowed, infrastructure projects have stalled, and alternative materials have gained popularity, resulting in an oversupplied cement market.
According to BCMA, Bangladesh's 76 registered manufacturing companies had a combined production capacity of 58 million tons against a local demand of just 31 million tons, a surplus of approximately 46%. Urbanization in Bangladesh hasn't matched this growth, with only 40.5% of its population living in cities in 2023.
With so many cement manufacturing companies competing in the market, competition is intense. This excess supply caused intense competition, lowering prices and profits. Smaller companies face challenges, while larger ones engage in price wars. The cement industry, once profitable, now struggles with overcapacity and dwindling demand. Additionally, eco-friendly building materials like green bricks, made from fly ash, rice husk ash, and recycled materials, are becoming popular in Bangladesh, further reducing cement demand.
Beyond Numbers: The Low Utilization Enigma
Bangladesh’s cement industry is a complex issue that goes beyond mere numbers. It’s a reflection of the industry’s aggressive growth strategy, the changing market dynamics, and the challenges that the industry faces in aligning production capacity with actual demand.
This situation raises several questions. Why is there such a large gap between production capacity and actual demand for cement? Why do companies continue to invest in increasing production capacity despite the low utilization rate? The answers to these questions lie in the complex dynamics of the cement industry in Bangladesh.
The aggressive expansion of the cement industry is fueled by the country’s rapid infrastructural development and the government’s mega projects. Companies are betting on the future growth of the market, driven by the government’s investment in public infrastructure projects, increased industrial constructions, real estate businesses, and individual home builders’ demand.
However, the low utilization rate also indicates that the industry is facing challenges. The demand for cement is not keeping pace with the increase in production capacity. This could be due to various factors such as economic conditions, changes in construction activity, and competition in the market.
Infrastructure Blues:The rural transportation infrastructure in Bangladesh is still developing. Inadequate transportation facilities can impede the efficient delivery of cement, hindering its utilization in countryside projects. This is particularly challenging for the cement industry as it limits the reach of their products to potential rural markets.
Monsoon's Muted Melody: Bangladesh experiences heavy monsoon rains from June to October each year. During this period, construction activities dip, leading to temporary decreases in demand and underutilized production capacity. This seasonality significantly affects the cement industry's utilization rates.
Financial Constraints: Access to financing is a significant challenge in Bangladesh, particularly for individual homeowners and small-scale projects. Limited access to affordable loans curbs the demand for cement, especially in rural areas. This financial constraint is a critical factor contributing to the low utilization of cement.
Alternative Melodies: The growing popularity of alternative building materials like brick and bamboo in rural areas further reduces cement's market share. These materials are often more accessible and affordable for rural populations, making them a preferred choice over cement for certain types of construction.
Export Growth of the Industry
CemNet.com published that Bangladesh expected a 15% growth in cement exports in FY 22-23. It states that Bangladesh has set an export target for the cement industry at US$11m during the financial year 2022-2023, up from US$9.57m earned in FY 21-22, which translates to an expected growth of 15% year-on-year, according to the Bangladesh Export Promotion Bureau (EPB) data.
More than a dozen companies in Bangladesh export cement to several countries including India, Myanmar, Nepal, Maldives, and Sri Lanka. These exports contribute significantly to the industry’s revenue and growth.
Further Cemnet.com also stated that in terms of volume, the cement export was 0.25 million tons in the 2021 calendar year. During the first nine months of the 2023 financial year, cement producers and traders exported $9.68 million worth of cement, which corresponds to a year-on-year rise of 49%. Moreover, in the first two months of FY 23-24 (July-August 2023), Bangladesh recorded a 78.8% year-on-year growth in cement export revenue to $2.95 million. This encouraging trend suggests that the cement industry in Bangladesh is on track to meet its export growth target.
Future Outlook of the Industry
Over the past five years, the cement industry in Bangladesh has seen a compound annual growth rate (CAGR) of 12.67%, according to an article by LightCastle Partners. This growth rate is significantly higher than the country’s GDP growth, which is expected to be around 5.3% for the fiscal year 2023. The high growth rate of the cement industry indicates that it is a rapidly expanding sector of the economy.
Despite the high growth rate, the low utilization rate indicates that there is a gap between the production capacity and the actual demand for cement in the country. This could be due to various factors such as economic conditions, changes in construction activity, and competition in the market.
