With big cos racing for expansion
Small cement producers under threat of ruination

Fazlur Rahman

The existence of the country's small cement producers is under threat as the bigger companies are racing for massive expansion to strengthen their grip in the highly saturated market.

Currently, 37 cement factories, which have a total national production capacity of 21.4 million metric tonnes (MT), are manufacturing around 13 million MT of cement against the demand for around 11 million MT, according to the Bangladesh Cement Manufacturers Association.

Although the market is highly saturated, most of the major companies are actively considering going for expansion to cut production cost and increase the share in the market. Some have even started working and are expecting to double their production level by this year, ringing a warning bell for the small producers.

Only seven companies are capable of producing a maximum of one million MT cement a year with their current capacity, a recent study conducted by Overseas Development Institute and funded by the UK Department for International Development (DFID) found.

"This suggests that the market is being consolidated, with smaller cement producers being taken over, or exiting the market," the study noted.

Indeed, this is what has already been happening. In 2002 there were 70 companies in operation, whereas now there are only 37. The consolidation is likely to continue, the DFID study added.

The small companies are feeling the heat from the larger companies, who control 80 per cent of the market share, as the larger companies are eyeing massive expansion to strengthen their position further.

Major players such as Crown Cement, King brand, Akij Cement and Meghna Group have all decided to raise their capacity to have a bigger share of the market.

Akij Cement, a subsidiary of Akij Group, is working to raise its daily production to 100,000 bags from the current level of 82,000 bags by June, its officials said.

The daily production of Crown Cement currently stands at 60,000 bags. The company is now working to take the production level to 120,000 bags daily at the end of the year, said Alamgir Kabir, founder director of the company.

"We are going for expansion because there is demand for export to north-east India, and local consumption is also increasing," said Mr Kabir adding that the industry has been growing at 10-12 per cent for the past couple of years.

He said demand for the construction material would go up in the coming days if the government moves ahead with its massive construction projects in the country.

Mr Kabir said the local manufacturers couldn't utilise their full production capacity due to energy crisis and inadequate infrastructure.

"Now they are aggressively going for massive expansion as the cost of production would come down if they can utilise their full capacity," he said adding that the local companies are currently utilising 60 per cent of their capacity.

"The cost for buying bulk raw materials also goes down. So all major players are embarking on major expansion to lower production cost as well as increase the market share," said Kabir, also vice-president of Bangladesh Cement Manufacturers Association.

Mr Kabir said the small companies have no other alternative but to go for expansion to remain in the business. "They have to go for optimum level of production - at least 300 metric tonnes daily - to run competitively."

From this June, Crown Cement hopes to produce 600 MT daily to take annual production to 1.8 million MT.

Monowar Hossain, managing director of Anwar Cement, a small-sized cement producer, admitted the expansion plans undertaken by the major players would inevitably have impacts on small producers.

He said many small producers have disappeared in the last few years as they could not compete with the major players.

Anwar Cement has already started work to increase its daily production to 1600 MT from the current level of 700 MT to remain in the race, Mr Hossain said. "None is sitting idle. Everyone is capitalising on their current capacity and increasing production."

He said the expansion spree would shake up the market in the coming days. "There will be a huge price war in the market as increased production will enable companies to lower prices. So many companies are utilising their full capacity to strengthen their grip in the market and prepare themselves for any future blow."

Around 40,000 people are employed in the industry.