How big cement, steel makers survive lean demand by investing in tech, ships
Yet, even in this prolonged downturn, a group of large millers have managed to hold its ground, not because of any market recovery, but due to structural advantages built over time
Highlights:
- Bangladesh's steel and cement sectors face prolonged demand and margin pressure
- Large producers survive through shipping control and integrated supply chains
- Own vessels cut raw material freight costs, boosting competitiveness
- VRM technology lowers cement production costs but requires heavy investment
- Severe overcapacity fuels price wars and low utilisation rates
- New large-scale steel plants may accelerate industry consolidation
Bangladesh's steel and cement industries have spent much of the past two years in survival mode, battered by weak demand, high financing costs and a prolonged squeeze on margins.
Yet, even in this prolonged downturn, a group of large millers have managed to hold its ground, not because of any market recovery, but due to structural advantages built over time.
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Industry insiders say the real dividing line is no longer pricing power alone. Companies that invested early in oceangoing vessels, feeder networks and energy-efficient production lines are now better placed to absorb shocks that continue to weigh on smaller producers.
In the cement sector, the advantage begins far from shore.
Large cement producers that own or control mother vessels can import clinker and other raw materials in parcels of 50,000 tonnes or more, significantly lowering freight costs. Brands such as Fresh, Shah, Crown and Akij fall into this category, according to industry insiders.
Smaller millers, by contrast, typically pool shipments, with three or four companies sharing a vessel, or rely on spot freight and lighterage, pushing up per-tonne costs.
"Small millers like us spend around $14 per tonne to import clinker, while large mills with their own vessels manage it at about $12," said Md Shahidullah, managing director of Metrocem Group, which has investments in both cement and steel.
"That difference may look small, but in a low-margin market it determines who survives," he said.
Beyond freight, vertically integrated supply chains, linking mother vessels to feeder ships and in-house logistics, also reduce uncertainty in delivery schedules, allowing larger producers to plan production more efficiently.
Technology has become second line of defence
Cement factories operating vertical roller mills (VRM) enjoy a production cost advantage of about Tk10 to Tk15 per bag compared with traditional tube or ball mills due to lower energy consumption and higher efficiency, Shahidullah said.
Major players including Shah Cement, Crown, Premier, 7 Rings, Akij and Bashundhara have already shifted to VRM-based production, insulating them from some of the cost pressures that continue to batter the industry.
But the entry barrier is steep. Industry insiders say at least Tk1,000 crore is needed to set up a VRM cement factory.
"Setting up a VRM plant requires an investment four to five times higher than a tube mill," said Mohammed Amirul Haque, managing director of Premier Cement Mills and president of the Bangladesh Cement Manufacturers Association.
"A VRM factory consumes less energy and we use power-saving devices to reduce costs. Yet Premier Cement is running at 40-50% capacity because of subdued demand," he told The Business Standard.
Md Khurshed Alam, executive director of Fresh Cement, said big mills are surviving on volume rather than profits.
"There is overcapacity, so there is a price war," he said.
According to the cement association, installed capacity now stands at nearly 100 million tonnes of cement, while annual demand is only around 40 million tonnes. Until the 1990s, Bangladesh was almost entirely dependent on imports.
"Demand from the government has gone down to nearly zero and we are surviving on remittance-driven demand," Alam said.
Steel facing similar squeeze
Many steel mills are operating at just 35-40% capacity amid a prolonged slowdown in construction, including mega projects.
As in cement, large steel producers enjoy a cost advantage by importing raw materials in bulk, often using their own vessels.
"Per-container freight costs are about $30 lower for large mills compared with smaller ones," said Shahidullah of Metrocem Steel.
Data from the Bangladesh Steel Manufacturers Association show the country has around 400 steel mills with a combined capacity of about 9 million tonnes, against demand of roughly 4 million tonnes.
The top ten producers control nearly 70% of the market, with BSRM leading at about 20%, followed by AKS, GPH and KSRM.
Smaller millers fear they may be forced out as three large new plants, together adding almost half the capacity of dozens of existing mills, are set to intensify competition.
Two projects, Bashundhara Multi Steel with an annual capacity of 1.2 million tonnes and Meghna Re-Rolling and Steel Mills with 1.5 million tonnes, are expected to come online this year. Chattogram-based Unitex Group is also setting up a one-million-tonne steel mill.
"The steel market has remained lean for nearly two years, and we expect demand to revive after the election,' said Mohammad Mazedul Islam, head of project at Bashundhara Multi Steel.
"We are preparing to enter the market by the end of this year," he said.
Mazedul said the technology being deployed would reduce production costs by about Tk5,000 per tonne, giving the company a significant competitive edge. Bashundhara has invested Tk4,500 crore in the project, which is expected to create around 1,000 jobs.
Industry insiders say the new entrants are betting on technology and scale to survive in an increasingly competitive market.
Mohammad Firoz, chief executive of Meghna Re-Rolling and Steel Mills, which has secured a $100 million financing package from the IFC, said he remains confident about the company's long-term prospects.
"We are using the latest technology, which will significantly reduce energy costs," he said.
"We can compete on scale, productivity and overheads. We are not worried," he added, while noting that market consolidation is likely as smaller mills struggle to compete with larger players on volume.
