KARACHI: DG Khan Cement, one of the largest cement manufacturers in the country, has kick-started trial production at its new 2.6-million-ton plant in Hub, Balochistan, which is feared to initiate a price war in the southern region.
“DG Khan Cement Company has completed installation of Pakistan’s largest cement plant in Hub, Balochistan,” said Company Secretary Khalid Mahmood Chohan in a notification to the Pakistan Stock Exchange (PSX).
“Cement produced in the trial run is being dispatched to customers,” he said. DG Khan Cement’s stock price dropped almost 1%, or Rs1.30, to Rs130.09 with trading in 1.43 million shares at the PSX on Wednesday.
“The largest vertical cement grinding mill with cope drive (new grinding technology) has started trial operation together with cement silos and packaging plant. Also, successful commissioning has been completed in raw material crushing, transportation and storage departments,” Chohan added.
The company did not disclose actual cost of the new plant. Market talk suggests the cost was somewhere between $300 and $350 million.
Sherman Securities’ analyst Saqib Hussain was of the view that “the launch of 2.6-million-ton facility by DG Khan Cement may initiate a price war in the southern region.”
The addition of new capacity may push cement prices down, he said. The analyst pointed out that cement players had brought new production capacity beyond existing demand in the region.
Earlier, Lucky Cement and Thatta Cement had cumulatively added 2.4 million tons of new production lines in December 2017 and January 2018 in the region. With the addition of 2.6 million tons by DG Khan Cement, the increase in production comes in at five million tons.
“Five million tons is a surplus capacity,” the analyst said, adding it would take around five years to utilise this capacity. Analysts suggested that the new plant would help DG Khan Cement to make exports with cheaper transportation cost as the Hub facility was very close to Karachi Port.
However, at a time when cement exports stay largely thin, the addition of a new production line will mainly cater to local demand.
About half a dozen cement manufacturers have announced the addition of new production lines keeping in view huge construction work under the China-Pakistan Economic Corridor (CPEC). Other players are expected to add another 20 million tons by 2020-21.
According to the All Pakistan Cement Manufacturers Association website, Pakistan’s total installed cement manufacturing capacity stands at 49.44 million tons per annum. Data perhaps does not include the new DG Khan plant.
Published in The Express Tribune, May 24th, 2018.