The GCC’s cement industry has been hit hard by the slowdown in the real estate sector, which is likely to remain subdued in the near future.
Development plans and economic/political reforms
The ongoing political turmoil in the Middle East has forced some governments to introduce additional measures on top of huge development plans already in place to pacify an agitated population. These measures are likely to trickle down into improved demand for cement.
Based on IMF projections, real GDP growth for the GCC in 2011 is projected to reach 5.9%, with Qatar leading the way at 20%. With a continued focus on diversification and infrastructure building, the demand is likely to remain strong for the foreseeable future.
Saudi Arabia’s Ninth Development Plan (2010 – 14) focuses on infrastructure development. The country’s cement demand is anticipated to grow at a 3 year CAGR of 5.5% to 52.1 million t by 2013.
The government of Oman announced the eighth five year plan in January 2011. Development projects related to infrastructure projects will take the major chunk of the plan (around US$31.2 billion of the US$112 billion).
In February 2010, the Kuwaiti parliament approved the Kuwait Development Plan (KDP), which allows the government to spend an estimated US$125 billion. A major portion (US$87 billion) has been allocated to the construction of Silk City.
Qatar has promised to spend US$50 billion on infrastructure upgrades and US$4 billion to build nine stadiums to host the 2022 FIFA World Cup. An expected US$6 billion will be spent on construction related projects, which will generate an additional 3 – 4 million t of demand in Qatar.
Abu Dhabi is expected to drive growth in the UAE, while Dubai is in the process of a slow recovery after the financial crisis.
GCC cement sector profitability
The top line of the GCC cement sector witnessed a 10.9% increase in 9M11 compared to 9M10 to reach US$3.4 billion; however, it announced a 3.5% decrease in profits for the 9M11 to US$1.1 billion.
The UAE, Oman and Qatar continue to be pressured by declining net profits. The UAE’s net profit decreased 86.6% to reach US$10.9 million during 9M11 and net margins are also at an all time low at 1.6% as compared to the previous year.
In Oman, the bottom line has fallen considerably during the 9M11 period. However, Omani companies did witness a 9.3% increase in sales revenue, reaching US$256.9 million. Net profits, however, decreased 48.8% compared to the previous year to reach US$55.6 million.
Qatar posted a 6.1% decrease in sales revenues and a 10% decrease in net profits during 9M11. This decline can be attributed to export sales entering Qatar.
Kuwait posted a 51.7% decrease in net profits to reach KWD49 million during 9M11, while KSA’s sales revenue increased 18.6% and its net profits climbed19.3%.
Cement prices in the GCC averaged around US$64.6/t during 9M11, a 3.8% decrease due to weak demand in the GCC, especially from Qatar and the UAE. All cement prices in the GCC witnessed a decrease except KSA and Qatar. Oman marked the largest decline of prices by 13% to reach US$64.4/t. Post-2009, the UAE started dumping its excess cement in Oman at low prices, thereby dragging down the pricing levels of local companies.
Cement demand in Saudi Arabia continued to grow strongly with an increase of 6.5% y/y in 3Q11 to 10.3 million t. The author expects this y/y growth trend to continue in 4Q11 due to the start of new construction projects.
Southern Province Cement Company and Saudi Cement Company accounted for most of the increase during 3Q11 (34.4% and 34.3%, respectively), while Arabian Cement and Yanbu Cement also witnessed a strong increase in demand (29.5% y/y and 24.2% y/y). Saudi Arabia has also unveiled a SAR100 billion Makkah development plan that will particularly benefit Yanbu and Arabian Cement.
Net income for Omani cement companies fell 48.8% to US$55.6 million in 9M11. Sales revenue for the sector in 9M11 witnessed an increase of 9.3% to US$256.9 million due to the addition of Pioneer Cement numbers to the total. Raysut Cement’s top line grew by 25.6%, while that of Oman Cement reported a drop of 10.7%. Production registered an increase of 31.6% during the period to 3.7 million t.
Cement prices in Oman fell to US$64.4/t in 9M11, due to dumping of low priced cement from neighbouring countries. On the whole, the country is witnessing an increase in cement demand thanks to the projects being carried out since the revolution.
Consolidated net income of listed cement companies in the UAE for 9M11 declined by 86.6% to US$10.9 million. Five of the nine listed companies were in losses totalling US$30.6 million. Overall, the UAE cement sector consolidated revenues reversed course and increased on a y/y basis to US$688.9 million during the 9M11 period.
Cement price in the UAE fell 5.3% to US$49/t in 9M11. Recently, the Cement Manufacturing Association agreed to maintain prices between AED170/t and AED190/t in November and increase it by 5% during December.
In a recent development within the sector, J.K. Cement has announced an investment of INR750 crore (AED55 million) to set up a white cement plant in the UAE. This is in sharp contrast to the earlier announced plans for a 2.2 million tpa, US$400 million project. J.K. Cement has approved the setting up of a grey cement plant at J.K. Cement Works (Fujairah) FZC with production capacity of 0.6 million tpa (with a provision to change over to 1.01 million tpa capacity) at a total cost outlay of US$150 million.
Qatar witnessed a drop in the bottom line by 9.9%, mainly because of a 6.1% drop in the top line during 9M11. However, in the 3Q11, the sector witnessed a profitability increase of 0.7% as it has curtailed its clinker imports. Consolidated revenues of the sector declined by 6.1% to US$240.4 million during 9M11. Cement prices in Qatar have mostly remained constant in the last couple of years and are likely to remain flat.
Qatar National Cement Company announced that it is going to increase its cement capacity by 0.93 million tpa to 5.36 million tpa, owing to an expected increase in demand in the coming years. Estimates of the demand for 2012 provided by government authorities are higher than the current demand of 3.5 – 4 million tpa. Average demand in Qatar during 2012 – 2017 is estimated at 4.8 million tpa.
This article is an abridged version of the full article, which appeared in the February 2012 issue of World Cement. Subscribers can access the full article by downloading the issue here.
Read the article online at: https://www.worldcement.com/africa-middle-east/03022012/gcc-cement-sector/