Cement operation management Bangladesh.

1. (ISTIUQ AHMED, JU EMBA)
Introduction
The Bangladeshi cement and construction industries have been directly and indirectly
affected by the ongoing measures taken by the country's government to control the spread
of the coronavirus pandemic. The country, which has been on holiday since 26 March, is
likely to see its time off extended by five additional days to 9 April as a result. This is
expected to impact the cement supply chain and continue to disrupt the implementation
of large projects, according to local media reports.
The outbreak has compelled Bangladesh to enforce general closure across the country,
shutting public and private offices and educational institutions, limiting banking activities
and transport movement.
In mid-June, the IMF in a country focus report on Bangladesh said that the economic
impact of Covid-19 has most notably been felt in three main areas: a fall in remittances; a
decline in RMG exports; and a drop in domestic economic activities.
A study conducted in May by Bangladesh Institute of Development Studies (BIDS) found
a whopping 16.4 million people sliding below the poverty line due to the pandemic.
Around 50 percent of them reported a decline in income, while over 20 percent of people
who had monthly earnings of below Tk 15,000 before said that they no longer had any
earnings. Among the people earning less than Tk 11,000 per month, 57 percent said they
had no income, 32 percent experienced a decrease in earnings, and only about 11 percent
said their income had remained stable. In the same month, a study done by Brac revealed
that about 36 percent city dwellers had lost their jobs and 3 percent did not receive
salaries despite having jobs. And there is little doubt that things haven't fared any better
since then.
Therefore, all three factors the IMF is concerned about are leading to two things: i) mass
unemployment; and ii) increased poverty. While relief packages are important to ensure
that many of these people do not starve to death, the government has to start preparing to
go further.
COVID-19 & Cement Industry of Bangladesh
The daily sale of cement has dropped to around one fifth– 5 lakh bags from up to 25 lakh
bags in regular times – during the nationwide shutdown enforced to slow the coronavirus
spread.
The ongoing Covid-19 pandemic has pushed cement manufacturers into a territoryof
nearly an unmanageable crisis, where no one knows how and when things will rebound.

2. Data available with the Bangladesh Cement Manufacturers Association (BCMA) suggest
the annual demand for cement is 3.3-3.5 crore tonnes. If a year counts 300 working days,
the daily sale stands at up to 1.2 lakh tonnes or 24-25 lakh bags.
"Daily sales have now dropped to around 5 lakh bags," estimates Md Shahidullah, vice-
president of the association.
Bangladesh's cement industry has been growing at a near double digit rate over the years
by catering to the booming economy, alongside exporting the product to some
neighboring markets.
More than three dozen large and mid-size manufacturers had been managing problems
such as over-capacity, tough competitions, tax burdens, a rapid increase in utility bills
and of course volatility in prices of imported raw materials.
But the coronavirus-induced crisis has pushed them into a new crisis.
Who is there to buy cement?
The industry supplies almost equal quantities of cement to government projects,
corporate projects and individual homebuilders.
At present, in the existing situation brought about by the shutdown, the first two groups
are running no construction sites.
Some individuals are trying to complete their constructions – building or extending
homes – before the upcoming monsoon, mainly in rural areas. Small sites are now the
key destinations for the cement industry.
In the circumstances, each of the companies has had to scale down production
considerably.
If the current situation is prolonged, many companies may declare layoffs, the current
scale is not enough for cement factories to avert losses.
COVID-19 affectedmarketgrowth
The COVID-19 pandemic lockdown from March to May hugely affected the cement
industry in terms of market growth, supply, and sales. The supply chain head interviewed
by Light Castle informed that the annual growth rate of the cement industry was 10 to 12
percent before. But the lockdown has slowed down the growth rate at an estimate of 3 to
6 percent. The fall of the growth rate can be attributed to the following reasons:

3. Unavailabilityof raw materials:
The cement industry of Bangladesh is completely dependent on imports for the supply of
clinkers, limestone, and other raw materials. But the government imposed public holidays
from late March to May and closed down all ports in the country. As a result,
manufacturers were not able to procure their necessary raw materials. Factories were thus
not able to operate. Exports were restrictedas well.
Missedsales during peak season:
The situation was made worse as the lockdown coincided with the peak demand season
consisting of the months March and April. As factories were required to be closed down,
manufacturers were not able to meet the peak demand.
Cessation of government mega-projects:
Adding to the problem was the fact that government mega-projects, except the high
priority ones like Rooppur Nuclear Power Plant, were stalled. These mega-projects
contribute 35 percent of the national cement consumption. Companies, thus missed out
on earning revenue from a key source.
The slowdownof real estate activities:
Loss of income due to business shutdown meant many urban dwellers were unable to
pay rent or forfeitedflat purchases – the source of income for real estate developers.
Moreover, ongoing projects were forced to a halt for two months. The combination of
these two meant real estate constructions and investments have come to a slowdown. The
real estate downturn translated to less demand for associated sectors including the cement
industry.
According to the interviewee, sales in the cement market collapsed to 30 percent of the
pre-COVID level in April. The sales level reached 40 percent and 50 percent of the pre-
COVID level in May and June respectively.
Beyond the shutdown, COVID-19 can create an impact on demand in the long run.
Demand may remain stagnant over the next two to three years before rising to the pre-
COVID levels. Sensing this situation, the MI Cement Factory Limited (also known as
Crown Cement) has decided not to invest in expansion worth BDT 60 billion.
Rising exports seeing fall by COVID and competition
Bangladesh exports cement to India, Myanmar, Sri Lanka, Nepal, and the Maldives. The
northeastern states like Assam and Tripura represent the biggest market for Bangladeshi
cement companies due to the remote location of these states from the manufacturing hubs
of India. Exports have seen double-digit growth over the past few years. Despite the rise,

4. the export volume makes up less than 1 percent of the total production. The Accounts and
Finance manager of another leading cement company interviewed by Light Castle
informed that annually Bangladeshi companies produce around 65 million bags of
cement from which only 400 to 500 thousand bags are exported.
Exports have seen a fall in FY 2019-20 as ports were closed down during the general
holidays, barring trade. Although this decline may be seen as a one-time event, there are
other reasons to believe that exports will fall in the long run. Competition from Indian
companies due to the granting of transit facilities will threaten the future potential of
cement exports to the northeastern states of India. Moreover, Bangladeshi cement
exporters also incur high transportation costs which disincentives exports.
Financial implications
Before the shutdown, the industry's daily revenue was over Tk100 crore with an average
factory-gate price for each bag at Tk400. The price gets 10-12 percent higher in the retail
market.
According to BCMA the daily revenue has now fallen below Tk25 crore.
The bigger concern is that the industry with over Tk50,000 crore investment has
receivables of about Tk10,000-12,000 crore because of dependence on credit sales.
The receivables have already been in a disrupted cycle and the worst part is we are not
confident about the pace of bill recovery in the coming days.
Outlook
If the pandemic is prolonged, or if the economy faces a harder time in the coming days,
the cement industry will suffer more.

5. During any economic stress, construction material industries take a heavy toll as
individuals and corporates tend to halt their spending in order to better focus on essential
current expenses.
Despite all this, hope still remains – that the government will accelerate its infrastructure
spending to offset the impact of a potential slack in private sector activities.
There will also remain challenges as the government is likely to be overburdened through
providing fiscal incentives to prop up the economy. It may downsize the development
budget to finance the non-development one.
If demand from all sectors squeezes, the cement industry may face unmanageable
pressure.
However, one good thing for the industry is raw material price in the international market
is already 10-15 percent down after the novel coronavirus outbreak. But most of the local
market brands are offering discounts to compete with each other, he observed.
Industry plea
The industry needs sufficient working capital in the coming days so that it can withstand
the reduced cash flow – both because of low revenue and slow collectionof receivables.
To tackle the reduced cash flow amid low sales and high receivables, they need their fair
share from the government-declared Tk30,000 crore package of concessional loans to
industrial entities.
Once the tough times are over, the industry will be capable enough to repay the loans
from the cash flow of the next three years.
The association of cement manufacturers has already written to the government to defer
the payment of utility bills for six months with the option of paying them in installments
later.
Besides, the cement industry will request the government to withdraw the recently
imposed minimum advanced income tax (AIT) on raw material imports.
At the beginning of the current fiscal year, the government imposed a minimum 5 percent
AIT on raw material imports for the cement industry. The tax has been reduced to 3
percent since January 1.
The 3 percent too is an unbearable burden because manufacturers are paying the
minimum income tax regardless of whether they are making profit or not.

6. As the AIT is not refundable in case of ultimate losses in business, it is putting bigger
pressure on some large companies.
Besides, they have to pay Tk500 in duty for importing a tonne of intermediate raw
materials –13 percent in reality – which is too high compared to that in other countries.
They will request the government to make it 5 percent so that the industry can withstand
tough economic times.
Conclusion
The current demand for cement declines drastically as the country-wide constructions,
including that of mega projects, have almost come to a halt following the prolonged
lockdown enforced to flatten the curve of Covid-19.
The sales of cement dropped around 46 per cent in April following serious disruptions in
constructions, according to information of Bangladesh Cement Manufacturers
Association (BCMA).
The manufacturers have observed the severe fall in sales, despite they had expected
double digit growth in 2020 after achieving above 7.0 per cent growth in previous year.
Bangladesh is still one of the lowest consuming countries of cement products in the
world.
Per capita consumption in Bangladesh was about 200 kg, while it is about 1700 kg in
China, 1250 kg in South Korea, 800 kg in Malaysia, 500 kg in Thailand, 270 kg in
Myanmar and 312 kg in India.
According to data of BCMA, individual house builders consume 50 per cent of demand,
developers/contractors grab about 25 per cent and the government controlledprojects fill
up the remaining 25 per cent.