As one of the most important construction materials, cement remains on the top charts of construction material buying. No construction is fully completed without using cement as a material. In our previous blogs, we have discussed different cement types widely used in the construction industry and their various applications. Today we are going to introduce you to one of the leaders of cement production in Pakistan.
Knowing about different cement companies is essential because there are plenty of options available in the market, but not everyone is durable. It is important to distinguish quality materials from sub-standard ones. Zarea.pk is committed to bringing you the best available resources in the market. We will help you choose the right option for your construction projects, and when it comes to cement, Pioneer cement is worth consideration.
Pioneer Cement Market Shares:
The production of Pioneer cement started back in the 1980s. Since then, it is known as a mid-level cement in the market. Situated near Sargodha, Punjab, this cement company primarily supplies cement to the northern parts of Pakistan. Pioneer cement was initially associated with Noon Group of Companies, which has some well-known subsidiaries like Nupur Foods. In 2009, Pioneer cement was acquired by Vision Holdings Middle East Limited (VHMEL). The Vision Group bought up to 25% f the company’s shares.
By 2019, the VHMEL managed to secure 47% of the market shares of Pioneer cement.
The Pioneer Cement’s remaining shares were bought by various companies, including banks and insurance companies, making up 22% of the total shares.
In 1992, when Pioneer cement first started its production, it had a total production capacity of 0.6 million tons per year. This production capacity gradually boomed to 0.7 million tons by the year 2005. Pioneer cement initiated its second production line in 2006, which had almost double the production capacity of the first one. The second production line started with the capacity of 1.3 million tons annually, which increased to a staggering 2 million tons in 2019.
Production of Pioneer Cement:
The production of Pioneer cement is, however, not only limited to the region of Punjab. Almost 10,000 tons of production capacity per day have been increased since the Greenfield Plant’s inception in Jamshoro Sindh. The increased production capacity is quite promising for the company as it will also increase its market share. The plant, which is still under the commissioning stage, will provide Pioneer cement with broader access to Pakistan’s Southern market. Presumably, the access will also be expanded to the international markets.
Maintaining over 2 million tons of capacity, Pioneer cement has earned up to 4% of the market share. From 58% to 78%, this cement company successfully grew its capacity utilization within a short period of 2 years (from 2015 to 2017). However, the level of utilization underwent a gradual decline in 2019. One of the reasons for this slowing down was that Pioneer cement upgraded old machinery and plants in 2017 and launched a new cement mill for the existing plants.
As a key market player of the country’s northern region, Pioneer cement directs almost the entire cement production to this particular region. When the domestic demand, government’s expansion mode, and infrastructural spending were on surge back in 2016-2018, both the capacity utilization and market shares of Pioneer cement grew significantly.
The growing demand is often evident from the volumetric growth. However, it is essential to note that the revenue depends on the stabilization of pricing agreed upon by the cement companies. In 2017, the competition grew with the expansion in the north region. Cement companies manufactured excess cement, which served as a reason for low brought prices. Due to the fluctuation and volatility of the pricing during the past few years, the company’s revenue has become uncertain.
Given the market trends, during 2015-2016, the revenue growth rate was 11%. 13% of revenue growth rate is attributed to 2017, which then turned into a downward trend. The revenue fell by 5% between 2018 to 2019.
Similarly, when it comes to input costs, the situation is no less different. Input costs determine where the margins will settle. Input costs are associated with the fuel. These costs highly depend upon global prices of coal, domestic prices of fuel, and the exchange rate. In 2016, the gross margins were nearly 43%. Back then, the rupee had a better place, and coal prices were low.
Pioneer cement installed a waste heat recovery unit the same year. This unit was meant to lessen the dependence on costly fuel. It was aimed to serve as a barrier to ever-increasing energy costs and rising powers. In 2017, the margins underwent a minimal decline of 1%, and the situation worsened when the margins fall to 28% by the year 2018. The reason behind that was the sudden increase in rupee devaluation. In 2019, it hit another low. The margins were 22%, and the costs of production sky-rocketed. Imported inputs came with hefty price tags. The heightened inflation also made packing materials and paper bags expensive. The cherry on the top, the interest rate hike grew the financial costs from 1% to 3%.
Pioneer Cement Export Value in 2021
Despite all these challenges, Pioneer cement is still firmly standing on the ground. The expansion of Pioneer cement is a part of its long-term goals. The company wishes to increase its access to the Southern markets of the country. One of the Southern markets’ advantages is that the competition is not as high as compared to Northern markets. The lesser level of saturation makes South an attractive opportunity to avail as a market player. Through South, the company can reach the overseas markets as well. Pioneer cement has been exporting cement to neighboring countries like Afghanistan and India. However, they didn’t turn out to be promising because India banned the exports, and in Afghanistan, the demand for Iranian cement is much stronger.
The Future of Pioneer Cement
For now, the market demand is under compression due to limited government expenditure. High-interest rates come with other high costs, such as increased costs of borrowing. The purchasing power is also jolted with inflation and increased tax incidences. The scenario has not been much favorable in terms of construction demands. However, some recent governmental approvals of projects can lift the situation a little.
With the high aim of setting foot in overseas markets, Pioneer cement will substantially grow shortly. However, it is essential to note that due to cut-throat competition in export markets, the margin is relatively low for local cement suppliers.
Although the price of coal is low internationally, the rupee depreciation has created an unfavorable market situation. In tough times like these, efficient inventory management is the way to go.
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