Lucky Cement launches new production line

Addition expands already surplus production capacity of sector

KARACHI: Lucky Cement has launched a new production line of 2.8 million tonnes per year, regaining its previous title as the largest cement manufacturing firm in Pakistan.

However, the development is set to initiate a price war as the latest addition has expanded the surplus production capacity of the already strained sector.

“Construction and installation after slight design modification with respect to the brownfield expansion for the additional line of 2.8 million tonnes per annum at our north, Khyber-Pakhtunkhwa, plant has been successfully completed as per the given project completion timelines,” stated a report sent to the Pakistan Stock Exchange (PSX).

“The new line was made operational with the commencement of clinker production in December 2019; with the addition of this new line for 2.8 million tonnes, the total production capacity, including at both north and south plants of the company, has now increased from previous 9.35 million tonnes to 12.15 million tonnes per annum.”

Bestway Cement, with production capacity of 10.3 million tonnes per annum, had taken the first position, which “now Lucky Cement has regained”, said Saqib Hussain, a cement-sector analyst at Sherman Securities.

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“The expansion will put further pressure on cement prices in the northern region, which is already going through a rough patch amid depressed demand and an expansionary cycle,” he said.

Lucky Cement’s new plant was already in the plan before economic slump started in the country, “that’s why they have to initiate it”, he said.

After this, Kohat Cement’s plant of 2.4 million tonnes was also in the line, he said. “It has started testing the plant and soon we will hear news of its commencement.”

These new capacities are coming at a time when prices have already dropped to Rs490-Rs500 per bag, compared to Rs550 six months ago.

Normally, there are two options for disposing of the surplus capacity in any sector - either to reduce prices when demand is low or export the commodity.

In the case of cement, export is not an easy option as companies cannot go abroad and sell in the open market where a buyer will come and purchase from a wholesaler.

“They need to have a contract from a foreign player,” he said. “This is why we don’t see consistency in cement export numbers, instead, we see surge in exports in some months, then a sharp plunge in other months.”

A significant pressure on cement prices was going to hit the sector, said the analyst.

Prices went down to Rs450-460 per bag at the beginning of the current year when Maple Leaf Cement and Cherat Cement started production at their plants, therefore, “we expect prices to go down to that level again”, Hussain added.

Published in The Express Tribune, December 31^st, 2019.

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