“ The global cement industry is a major contributor to the construction sector, producing the essential ingredient for concrete, a versatile and ubiquitous building material. It's a mature industry with a long history, dating back to ancient civilizations. Today, it continues to be a significant economic driver, employing millions of people worldwide.”
Bangladesh's remarkable achievements in infrastructure development are largely attributed to its thriving cement industry. Over its history, this industry has advanced significantly and grown to be a vital part of the country's development engine. It contributes significantly to the processes of urbanization and economic growth.
Since cement is essential for constructing homes, businesses, bridges, roads, and other infrastructure projects, the cement industry is typically seen as "Positively Correlated" with economic growth. Growth in the economy typically results in higher construction investment, which raises cement demand. People relocate to cities and industries grow as economies grow, which increases demand for building supplies like cement. Cement usage is strongly impacted by the fact that governments in developing nations frequently give infrastructure development projects top priority. Economic downturns can have a major effect on building activity, which lowers the demand for cement.
Worldwide cement output is projected by Statista to be at 4.1 billion tons in 2023 and is projected to expand at a compound annual growth rate (CAGR) of 4.3% to 5.4 billion tons by 2030, with a worldwide economic growth rate of 3%. The size of the global cement industry was assessed by Fortune Business Insight to be $406 billion in 2023 and is projected to increase to $423 billion in 2024.
Key Players:
As per Global Data, the key players in the global cement industry are:
China: The world's largest cement producer, accounting for over 60% of global production. Major players include CNBM, Sinoma Cement, and China Resources Cement.
India: The second-largest producer of cement, with a growing domestic market and significant exports. Leading companies include ACC, Ambuja Cements, and Ultratech Cement.
Other major producers: Vietnam, United States, Turkey, Egypt, Indonesia, Brazil, Iran, and Thailand.
While, major consuming regions include Asia Pacific, North America, Europe, and the Middle East.
According to Indexbox, as of 2023, China is the clear global leader in the production of clinker, the raw material used to make cement. In 2022, the country produced an astounding 2 billion metric tons of clinker, which accounted for more than half of the world's total clinker production. India came in second in the competition. Certain nations, such as Thailand and Vietnam, are major exporters of clinker and are vital to global trade. Changes in currency rates have the same potential to affect profitability as variations in the price of coal, limestone, and other raw materials.
Bangladesh produces over 35 million tons of cement a year, making it the 20th largest market in the world. But demand frequently outpaces supply, requiring imports. The Bangladesh Cement Manufacturers Association (BCMA) projects that the country's cement sector generates about $3 billion in revenue annually. According to a different Bangladesh Bank report on clinker imports, as of November 2023, the reported value was 6,065 million BDT, or almost USD 70.6 million. But rather than an annual figure, this shows a monthly figure.
Several policies and factors collectively shape the landscape of the Bangladesh Cement Industry:
1. Taxes:
i. Corporate Income Tax: Standard corporate tax rate applies to cement manufacturers (27.5% in 2024).
ii. Import Duties:
(a) Clinker: The import duty on clinker in Bangladesh was increased from BDT 500 to BDT 700 per tonne in 2024, aimed at encouraging domestic clinker production.
(b) Other raw materials: Varying import duties depending on the specific material.
(c) VAT: Standard 15% VAT applies to cement sales.
2. Subsidies:
i. Limited direct subsidies: Currently, no direct subsidies are provided to the cement industry.
ii. Indirect support: Government infrastructure projects create significant cement demand, supporting industry growth.
3. Import/Export Incentives:
i. Duty Drawback: Exporters can claim refunds on import duties paid on raw materials used in exported cement.
ii. Export Promotion Fund: Government provides financial assistance and promotional support for cement exports.
iii. Tax Holidays: Special Economic Zones offer tax benefits for export-oriented cement units.
4. Other Policies:
i. Environment Regulations: Increasingly strict emission standards and environmental regulations force manufacturers to adopt cleaner technologies.
ii. Infrastructure Development: Government initiatives like port expansion and improved transportation networks facilitate raw material imports and product distribution.
iii. Trade Agreements: Regional trade agreements with neighboring countries can reduce export barriers and create new markets for Bangladeshi cement.
Examples of Policy Impact:
Lowering import duties on clinker raw materials has spurred local clinker production, diminishing reliance on imports and likely driving down expenses. Moreover, the implementation of a duty drawback scheme has invigorated cement exports, rendering them more competitive in global markets. Concurrently, environmental regulations have prompted certain manufacturers to embrace cleaner technologies, such as Premier Cement's adoption of Vertical Roll Miller (VRM), thereby curbing emissions and potentially reducing long-term operational costs.
The cement industry, like any other, is not immune to the various trends and challenges that arise from the ever-changing economic, environmental, and technological landscape. These trends and challenges can significantly impact the industry’s growth, profitability, and sustainability.
Sustainability: Growing focus on reducing carbon emissions and energy consumption through alternative fuels and innovative production processes.
Consolidation: Mergers and acquisitions are shaping the industry landscape, creating larger and more competitive players.
Evolving markets: Increasing demand in emerging economies, while mature markets face challenges like flat or declining demand.
Technological advancements: According to McKinsey, Automation, digitalization, AI for improved efficiency and productivity.
Precast concrete: Growing demand for prefabricated elements due to speed and efficiency benefits
Geopolitical and economic uncertainties: Potential impact on raw material prices, trade flows, and project investments
Increased Production Capacity: Installed production capacity has grown significantly in Bangladesh, reaching 58 million tonnes annually in 2022, exceeding domestic demand. Further expansion plans are underway. However, it’s worth noting that the local cement production capacity utilization rate appears to be around 56% based on data from a recent feature in the Financial Express newspaper.
Technological Advancements: Major manufacturers are adopting eco-friendly production processes like vertical roller mills and roller presses, reducing energy consumption and pollution.
Shift Towards Exports: While domestic demand remains strong, exports are increasing, potentially opening new markets for Bangladeshi cement.
Government Support: The government has implemented policies to promote the industry, including tax benefits and infrastructure development initiatives
Challenges:
In the following sections, we will delve into the key trends shaping the future of the cement industry and the challenges it must overcome to thrive in the years to come.
Volatile raw material prices: World Cement Association stated that fluctuations in the costs of coal, limestone, and other raw materials can impact profitability.
Environmental regulations: Stringent regulations on emissions and energy consumption pose compliance challenges. Traditional production methods have high energy consumption and pollution levels, requiring sustainable alternatives.
Competition: Intense competition within the industry, putting pressure on margins and requiring continuous innovation.
Overcapacity: The current production capacity exceeds domestic demand, leading to potential price wars and profitability concerns.
Logistics and Infrastructure Bottlenecks: Inefficient transportation and logistics infrastructure can increase costs and hamper distribution.
Cement demand is expected to remain strong due to Bangladesh's ambitious government plans, which include the extension of the Padma Bridge and Metro Rail projects. The government's "Vision 2041" emphasizes significant investments in infrastructure, which could require millions of tons of cement over the course of the next 20 years.
Cement consumption is rising as a result of the nation's growing urban population and rising disposable incomes, which are fueling an increase in apartment and housing developments. There is a lot of development going on, especially in Dhaka, where developers use about 20 million tonnes of cement a year. It appears that more cities will soon follow suit with this trend.
Bangladesh, which has excess capacity for production, is targeting regional markets for exporting cement. Strategies for expansion are directed toward nations such as Nepal, Bhutan, and Myanmar. Notably, demonstrating Nepal's export potential, Crown Cement recently signed a major agreement to export 1.2 million tonnes of cement to that country.
Adopting environmentally friendly technology, including vertical roller mills (VRM), is improving sustainability while reducing costs and reducing emissions. Premier Cement's implementation of VRM technology has led to a significant reduction of 40% in energy usage and greenhouse gas emissions.
The development of domestic clinker production, tax incentives, and other ongoing government initiatives are expected to provide support for the cement industry's growth. The government's efforts to promote industry growth are in line with the recent lowering of import levies on raw materials used in the production of clinker, which serves as an additional incentive for local manufacturing.
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