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Introduction to Nepalese Cement Market Pg4


1.6       Demand and supply situation of cement

The table 10 demonstrates that there will be tremendous shortages of cement in the country which is supported by the demand for and supply of cement. As discussed earlier too, the performance of the public and private sector both responsible for cement production is rather erratic and one can say that their performance may further deteriorate because of reasons stated above.

Table 10: Demand and supply situation of cement                         In '000 MT


Fiscal
year
Annual
projected
consumption * (A)
Public
sector
production (B)
Private
sector
production
(C)
Total
existing
production
(D=B+C)
Balance surplus
(+)
Deficit
(-)
(E=A-D)
Deficit
to be
fulfilled by
import
(%) (E/A)
2007/08
3,080
239
1,450
1,689
1,391
45
2008/09
3,388
266
1,611
1,877
1,511
45
20089/10
3,726
266
1,611
1,877
1,849
50
20010/11
4,099
293
1,772
2,065
2,034
50
20011/12
4,509
293
1,772
2,065
2,444
54
20012/13
4,960
293
1,772
2,065
2,895
58
20013/14
5,456
293
1,772
2,065
3,391
62
20014/15
6,001
293
1,772
2,065
3,936
65
20015/16
6,602
319
1,933
2,252
4,350
66
20016/17
8,262
319
1,933
2,252
6,010
73
20017/18
9,088
319
1,933
2,252
6,836
75
20018/19
9,997
319
1,933
2,252
7,745
77
20019/20
10,996
319
1,933
2,252
8,744
79
Note:      * Projected by Arun Valley Hydropower Development Company Ltd.
      1.      Cement demand situation
Demand data are not available for projection. In the absence of data, cement market is projected based on apparent consumption. So, projection given in this proposal is not demand projection but consumption projection. As per consumption projection, the total market for cement in Nepal is 3,080 million tonnes which is higher than the installed capacity of operating cement industries. Even if the cement industries are in the position to increase capacity utilization of existing plants to anywhere near their maximum potential, the shortfall in demand and domestic production is very wide that is 1,391,000 tonnes. It shows that 45% of expected consumption has to be fulfilled by the import mainly form India.

If one looks at the demand of cement in table 10, it is apparent that the market for cement in Nepal is very much one of seller's market. However, it is also interesting to note that customer preferences exist in relation to source of supply. Udayapur cement being the most preferred as far as Nepalese cement is concerned, followed by Hetauda. Outside Kathmandu valley, Indian cement is often first choice, not for reason of quality but because of price and availability.

1.6.2    Cement supply situation

The domestic production both from public and private sector, and import from India and other east Asian countries are the sources of supply. The public sector industries produce only 239,000 tonnes which is 45% of total installed capacity of 532,075 tonnes. Himal Cement Company is excluded. It no longer produce cement. At present public sector industries are operating below 50% and they will utilize 50% of their capacity in 2009/10. they will maintain 55% of their capacity  during 2010/11 to 2014/15 and 60% during 2015/16 to 2019/20. similar is the case with other private sector integrated and clinker based mini, medium and large scale industries (refer table 4). As per the capacity utilization of existing cement production industries published in economic survey, 2006/07, the production capacity was utilized 62% maximum in 1994/95 and it was 40% in 2005/06. Therefore, examining the complex problems of cement industries in the country, they will maintain only 60% of the capacity in the coming decade. Besides inefficient management and adequate and timely arrangement of technical requirements for production, the power load shedding severely affected the production.

The maximum supply of cement from public sector (319,245 tonnes) and private sector (1,082,731 tonnes) will be 1,401,976 tonnes in 2015/16 which is not even sufficient to meet present projected consumption of 3,080,000 tonnes no to talk of fulfilling demand for 2015/16 which will be 6,602,000 tonnes. At this consumption projection point domestic production will fulfill only 34% of the expected consumption rest 66 % has to be satisfied through import. So there is wide scope of market to justify the establishment of proposed Surkhet Cement Industry of 1500 tpd capacity. This study focused market analysis based on the production of two public sector industries, twelve private sector integrated industries and eleven private sector clinker based industries. It is mentioned earlier that the Department of Industry has registered forty three private industries both integrated and clinker based. For the time being let us assumed that all industries registered under private sector will go into production by the year 2011/12. the total production capacity of cement will be 4,386,712 tonnes. Also it is assumed that they will maintain 55% of their capacity. The expected production will be 2,412,692 tonnes whereas the projected annual consumption will be 4,509,000 tonnes resulting the deficit in the supply of cement will remain 2,096,308 tonnes. Even in this situation, the establishment of cement industry with an annual cement production of 504,000 tonnes (1,500 tpd) is fully justified.

1.7       Cement supply source

In the main, the manufacturers sell the largest proportion of their production via National Trading Limited, who in turn sell on to smaller dealers. They also sell directly to dealers. Ex - works sales to the larger construction companies also occur,  although in the majority of cases tenders for the supply of cement for major contracts and to meet expected shortfalls are taken up by Indian suppliers who are able to compete with lower prices against the government fixed selling prices of Nepalese cement.

The supply of cement throughout Nepal is based entirely on 50 kg bags of cement packed in jute bags or more often than not, poly bags which can be supplied from Nepalese sources or from India. Typical loads are 200 bags of cement (10 tonnes). Small orders are referred direct to a dealer outlet.

1.8       Future of cement industries

The future for Nepal's cement industry is reported to be very favorable. The market is substantial relative to current production capability and installed production capacity. It is a seller's market. Fourteen industries including two public sector industries have access to limestone resources which are of cement quality and have sufficient reserves to meet increased capacity and demand in the future. The market is growing. At present domestic production is fulfilling 55%. This share will gradually decline as per our projection. The domestic production will fulfill 53% in 2008/09, 35% in 2014/15 and 21% in 2019/20. The cement industry needs to improve its efficiency by dealing first with the shortcoming of its present manufacturing facilities and then increase the current capacity to the higher level.

It is noted that the present 12 integrated cement industries do not have their own mines to supply limestone except Maruti, Triveni and Panch Ratna Cement Udhyog. These industries were give license to commence production of cement on the condition that they will arrange their own mines within five years of operation. None of the industries were fulfilling the conditions. Therefore, to increase the production of cement the GON must extend five years condition and at the same time pay attention to revive sick industries and give incentive to those industries which are still not under operation. If the GON is not serious in talking the problems faced by these industries, the cement supply situation is very bleak and Nepal has to depend heavily on the import. This will create problem of timely availability of cement, hampering construction activities and ultimately adversely affect the development work of the country.