Crown Cement ditches Tk600cr expansion plan for overcapacity

The MI Cement Factory Ltd, popularly known as Crown Cement, has postponed its Tk600 crore expansion plans due to Covid-19 and an overcapacity of production against the domestic market demand.

In an official statement, the company said the cement industry has seen a sharp decline in demand in the wake of the outbreak of the novel coronavirus and that the entire industry is currently operating at substantially lower capacity levels.

The demand is expected to remain tepid in the next two to three years until the pandemic ravaged economy recovers, it added.

The company said it thinks it will be able to meet the market demand over the next two-three years with its existing capacity. As such the decision for the expansion can be considered at a later stage, it added.

On 17 January 2019, the company announced its plan to expand its daily production capacity by 76% to 19,400 tonnes with the introduction of the sixth manufacturing unit at its factory in Munshiganj.

The cement maker had set January 2021 as the commercial production date of the project.

The company has also canceled its plan to transfer three oceangoing vessels by establishing three shipping companies for commercial transportation of goods, under the Tk600 crore project.

It now appears that the transfer will subject the companies to an unforeseen heavy tax burden, both internationally and nationally, which does not justify the earlier benefit anticipated for transferring its three oceangoing vessels, according to company officials.

Industry insiders said the use of cement in the country has increased manifold in the last two decades. Per capita cement use was only 45kg in 2000, but the amount rose to 200kg at the end of last year, they informed.

As a result, companies have been increasing their production capacity for the last several years to dominate the growing market.

At present, the production capacity of the cement factories in the country is more than double the market demand, which has led to a stiff competition among the companies, industry people revealed.

"Even though the cost of cement production has increased, its price has not increased proportionately because of the competition. Consequently, a cement company that has always made profit now incurs losses even in the face of some small obstacle."

According to industry insiders, there are around 35 active cement factories in the country at present. Although the demand for cement is 3.50 crore tonnes per annum, the total production capacity of the factories is 8 crore tonnes. In the next three years, the capacity will rise by another 1.1 crore tonnes, they said.

Entrepreneurs in this sector have invested around Tk42,000 crore so far. Of this, bank loans are more than Tk30,000 crore.

Several lakh construction workers, employees and officials are directly or indirectly involved with this industry.

The top 10 companies occupy 81% of the market share, with Shah Cement being the top player.

LafargeHolcim, Bashundhara, Seven Rings, Heidelberg, MI Cement, Premier Cement, Fresh Cement, Akij Cement and Confidence Cement are some of the leading brands in the sector.

According to the Bangladesh Cement Manufacturers Association (BCMA), cement production fell by 80% during the countrywide coronavirus shutdown, but it has now returned to normal level, thanks to a resumption of construction activities.

Industry people mentioned that around 70% of the cement manufacturers returned to the growth trajectory in June recovering from a 52% decline in sales in the April-May period of this year.

Cement industry is the first sector to make a rebound from the economic fallout of the coronavirus pandemic.

The industry saw an over 5% growth the last month, while the sectoral growth in sales during the four months from June to September was around 6%.

Md Shahidullah, vice-president of the BCMA and managing director of Metrocem Cement, told The Business Standard that the demand for cement in the local market is increasing thanks to the various mega projects of the government. Moreover, new prospects are opening up riding on export opportunities to neighbouring countries including India.

Meanwhile, in the first three quarters of the FY2019-20, Crown Cement posted a revenue of Tk1,144 crore, up by 4% compared to the same period of the previous year.

However, in these three quarters, the company incurred a loss of Tk23.68 crore and posted a Tk1.60 loss per share due to increased tax burdens.

Crown Cement got listed with the Dhaka Stock Exchange (DSE) in 2011. It's paid up capital is Tk148.50 crore.

The closing price of the company's each share was Tk44.40 on Thursday, while its share's highest price was Tk57.50 on the DSE within the last 12 months.