Arab Today, arab today cement industry under pressure
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Arab Today, arab today
Arab Today, arab today

Cement industry under pressure

Arab Today, arab today

Arab Today, arab today Cement industry under pressure

Dubai - Arabstoday

Sluggish cement sales in 2011 may rebound this year as regional projects in the billions reinvigorate demand for building materials, say industry executives involved in billion dollar deals across the Middle East. But the jury is still out pending a full year fin-ancial review as higher production capacity outweighed demand in the UAE where construction fell by almost half in 2011, according to a report. The GCC Cement Sector Quarterly report, released by Global Investment House late last year, said that regionally in the first nine months of 2011 the cement sector realised a 10.9 per cent top line increase to cap out at $3.4 billion (Dh12.4 billion) but the industry, faced with increasing production costs, suffered a 3.5 per cent decrease in profits. \"The UAE top line increased 1.2 per cent to $888.9 million during nine months of 2011, as compared to the previous year, and costs increased by nine per cent during the period, bringing gross margin to an all-time low of 4.8 per cent,\" reported Global Investment House. Average cement prices across the GCC, the report suggested, fell by 3.8 per cent \"due to the fact that demand continues to be weak in the GCC, especially from Qatar and the UAE\". The report said: \"UAE realisation prices decreased 5.3 per cent from $51.8 per tonne to $49 per tonne in the first three quarters.\" The report attributed the price decrease in the UAE to more supply, noting that \"excess supply from new local UAE companies dampen[ed] cement prices. In addition, real estate activity and [the] slow construction market have halted the cement market growth in UAE, as of year-end 2010, 49.5 per cent of the project market is on hold.\" The report added that the \"UAE continues to face pressure on its cement industry which is proved by a decline [in] sales, demand, profits and higher inventories.\" By comparison, the report said that Saudi Arabia saw prices jump 5.4 per cent in the first nine months of last year to $64.6 per tonne. The increase in Saudi Arabian cement prices was attributed to increased government tenders for large contracts including an order to build 500,000 housing units as well as hospital expansions, projects requiring large quantities of cement. A construction spike in Saudi Arabia demanding more cement will be met by large capacity built up in the region over the last decade, the report said. \"During the boom periods, there were massive capacity additions which raised GCC capacity from less than 40 million tonnes per annum in 2004 to more than double at around 106.6 million currently,\" said Global Investment House. \"Ironically, most of these massive capacity additions have come online at a time when the region possibly faced the worst economic recession in many decades.\" ‘Severe cash crunch\' Regionally, the report noted that the \"slowdown in the real estate sector, which accounts for roughly 65-70 per cent of cement consumption in the region, has hit the sector hard. With most builders still experiencing a severe cash crunch, real estate development will likely remain subdued in the near future, staying far from the searing pace seen before the crisis.\" There are bright spots, however, in the UAE building materials sector thanks to booming construction projects in the Middle East\'s infrastructure. Jafza officials expect to see trade generation by building material companies located in the free zone increase in the years ahead. Ebrahim Al Jamahi, deputy CEO and chief commercial officer of EZW, UAE region, said in a statement in mid-December that \"the recent wave of GCC-wide infrastructure projects that have been announced by governments in the region are expected to drive construction industry recovery.\" The Jafza statement cited new estimates that the GCC will spend $3 trillion by 2020 in new construction investments. Jafza noted that the UAE, Saudi Arabia and Qatar account for 80 per cent of the predicted $452 billion in infrastructure projects now in the books for the region, according to Ventures Middle East. Rizwan Sajan, founder and chairman of the Danube Group, said the company achieved a prosperous 2011 when it came to selling building materials such as steel, plywood, hardware and electrical items. Danube\'s growth for 2011 will likely fall between 25 and 30 per cent, he said, across the board. Overall, Sajan said: \"We\'re showing robust sales in other areas such as steel.\" However, in an interview he told Gulf News that as expected, the concrete portion of the business fell short. ‘A challenge\' \"The cement industry was hit hard last year,\" he said. \"Supply was much more than demand. Sadly, capacity is much higher than what the market requires. This has tremendous strain on prices.\" He added: \"For some time it\'s going to be like this in the UAE. It\'s going to be a challenge.\" Dr J.R. Gangaramani, president and executive chairman of the Al Fara\'a Integrated Construction Group, said his company was one of the largest producers of cement in the UAE. He acknowledged that cement demand had dropped in 2011, especially in the UAE, and that the company could \"feel the pinch.\" Gangaramani said his company had signed a $21 billion contract to supply cement to an undisclosed project in Saudi Arabia and predicted a strong year ahead with other projects in the UAE and across the GCC for Danube. \"Some other projects are on their way,\" he said. \"In the UAE, the possibilities are open. In Abu Dhabi, I can see good things coming.\" He predicted that 2012 will see a strong resurgence in demand of 15-20 per cent in the UAE. \"It could be as high as 20 per cent but a more conservative estimate is 15 per cent,\" he said.

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