Introduction:

Any investment always associates with some internal/external risk factors of which some can be
averted, while others are beyond control. No organizations in this world can run from risk. It is
an integral part of any business and also any kind of investment. So organizations carefully
consider all the risks and uncertainties associated with the company along with all the
information they have. In other words, they try to manage it by minimizing those risks so that
their loss is minimized and their businesses don’t fall.

Bangladesh’s Cement Industry:

Bangladesh’s cement industry is the 40th largest market in the world. Currently capacity of the
industry is about 20 million tons (MT). Top 13 cement companies are alone controlling over
78% of the total industry capacity. Per capita consumption remains poor when compared with
the world average; only 65kg (Fiscal Year 2009) while our neighboring countries, India and
Pakistan, have per capita consumption of 135kg and 130kg respectively. This underlines
tremendous scope for growth in the Bangladesh cement industry in the long term. Cement
industry is a freight intensive industry and transporting it over long distances can prove to be
uneconomical. For that reason industry is regional in nature. It’s also seasonal in nature, during
Monsoon industry suffers from low demand. The pricing of cement of various companies in the
industry are very close to one another. Currently, Heidelberg, Holcim and Lafarge are the leaders
among multinational cement manufacturers and Shah and Meghna are the leading domestic
manufacturers. Shah cement is the market leader with close to 14.20% of the market share,
followed by Heidelberg with about 9.30% of the market share. During 2010, many small local
manufacturers like Premier, Seven Circle, Crown, Fresh and King cement increased their sales
drastically taking the benefits of economies of scale, and aggressive marketing effort.

Industry Demand & Production

Year Consumption Growth Rate Capacity Growth Rate

(MT) (MT)
2005 7.60 18.50% 11.17 5.20%
2006 8.40 10.53% 11.91 6.63%
2007 8.20 -2.38% 12.20 2.48%
2008 8.54 4.10% 14.44 18.38%
2009 10.57 23.82% 17.35 20.14%
2010 13.93 31.80% 19.95 14.96%

Considering the Life cycle of the industry, currently cement industry of Bangladesh is in the
growth stage. Sales of cement are increasing due to growing demand for cement in both the local
and foreign markets. The industry realized about 30% and 21% growth in 2009 and 2010
respectively.

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 Risk Factors of Bangladesh’s Cement Industry:
(1) Debt: Most of the cement companies in Bangladesh operate their business in credit. So if
there is any natural calamity, political unrest for long time or any kind of permanent damage
of infrastructure then production will stop. So there will be no sale. As a result there is a huge
chance that those loans will default and company could be bankrupt.
(2) Interest Rate Risk: Over the years financial market of Bangladesh has been experiencing
volatile interest rate. Movement of interest rate is not favorable which enhances the cost of
fund of companies and could adversely affect the business and future financial performance.
Most of the companies have taken working capital loan with variable interest rates which
may get affected due to increase of interest rate.
(3) Exchange Rate Risk: Most of the raw materials of cement industry are imported from
various countries. Also some cement companies export their product. Unfavorable volatility
of foreign currency may affect the profitability of the industry.
(4) Machine Breakdown Risk: If a machine breaks down in a certain company then the
production process halts for a period of time because the whole system is designed in a way
that if a single machine stopped working then there is a breaker which will stop other
machines also to stop wastage of raw materials and any other kind of accident. Normally on
average it takes 1-2 months to resume production. So there is chance of potential loss for that
company.
(5) Political Risk: In Bangladesh political unrest is a frequently happened incident. In time of
national election cement industry observes a fall of sales because at that time all the projects
taken by the government seemed to be stopped. Also real estate companies don’t start any
new project at that time. So there is a sales fall risk in time of national election. Not only that
but if new party is elected then they usually halt the entire ongoing project for a very long
time. So projected sale will fall for the entire cement industry of Bangladesh.
(6) Operational Risk: Shortage of power/gas supply, labor unrest, unavailability or price
increase of raw material, natural calamities like flood, cyclone, earth quack etc. may disrupt
the production of the industry and can adversely impact the profitability of the industry.
(7) Potential Change In Global Policy: Main raw materials of cement are the clinker,
limestone, slag and gypsum etc. Among them clinker is the most important raw material.
China, Vietnam, Myanmar are the countries exporting clinker. Recently China and Myanmar
stopped exporting this. So only supplier country is Vietnam. It is heard that when Vietnam’s
economy will be strong enough to setup cement industry on their own, they will stop
exporting clinker. That tie Bangladesh’s cement industry will be in deep trouble.
(8) Market and Technology-Related Risks: In the global market of 21st century, developed
technology, products and services render obsolete the old service and product strategy. So,
existing organizations may not be able to cope up with the future needs and demands.

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 Risk Management by Bangladesh’s Cement Industry:
(1) Debt Management: Obviously debt is a dangerous instrument which can take down a
company. Most of the companies in our cement industry know it. Also banks are aware of it
too. Banks are giving loans by checking the credit history of that particular company. If
banks found out that there are chances of credit default then they will not give the loans. So
loan default probability is very low in this case. Also most of the companies are now started
operating their business activities through equity. So loan default probability will go down
drastically.
(2) Interest Rate Risk Management: Fluctuation of interest rate on borrowing would have
lower impact upon the financial performance of the companies as most of the companies
emphasize on equity based financing to reduce dependency on borrowed fund.
(3) Exchange Rate Risk Management: Exchange rate of used currency is almost stable for the
last couple of years. Main raw materials for the project are clinker, gypsum, slag fly ash and
lime stone. All the raw materials are imported. Market price is usually adjusted based on the
cost of raw materials.
(4) Machine Breakdown Risk Management: If a machine breaks down in a certain company
then the company outsources the rest of the production to another company whose
production facilities are underutilized. Machine failure will not cost extra money because
these machines have long warranty periods and technicians from the machine company come
to Bangladesh to fix this. So the cement company doesn’t need to worry about any other
extra costs regarding machine failure.
(5) Political Risk Management: Bangladesh cement industry is in a growth stage. It is
estimated that till the year 2018 this industry will grow by 37%. So the loss incurred due to
political unrest and new government policy will be handsomely compensated. Also cement
companies know that during the time of election sales will go down so they produce low
during that time.
(6) Operational Risk Management: Because of shortage of power supply most companies are
now using solar plant for uninterrupted electricity supply. Now in case of natural disaster the
industry has no risk minimization plan because it’s not in anybody’s hand.
(7) Global Policy Risk Management: This is going to be the most risky situation for our
cement industry if Vietnam stopped exporting clinker. The industry doesn’t take any steps
regarding this till now but soon negotiations will be held to convince Vietnam.
(8) Market and Technology-Related Risks Management: The industry is very much aware of
this issue and most of the companies are already well-equipped with a pool of technical
personnel to maintain the installed production facilities.

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Conclusion:
The cement industry is likely to maintain its current growth momentum and continue
growing at around 20% to 25% in the medium to long term. Government initiatives in the
infrastructure sector and the housing sector are likely to be the main growth drivers. Our per
capita consumption is relatively low than India and Pakistan. So this is a chance for our
cement industry to grow more. Comparing to other business sectors of Bangladesh this
sector’s risks are relatively very low. Also there are solutions to manage those risks
effectively. So this industry will be the top profitable industry of Bangladesh in future.

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