Analysis

UAE cement firms write off 2010 due to project slump

Companies say that infrastructure projects in the emirates are expected to drive demand for building materials in 2011

cement prices uaeDelays in construction projects have led to continued negative performance in the Gulf’s cement sector, with many UAE cement firms not expecting sales to increase until 2011.
“Volume wise, the market is still very tight; demand is still down and there is still an oversupply. The projects we were anticipating to come online this year haven’t happened, despite a lot of talk that the market would pick up in the second half,” Jebel Ali Cement director Pierre Issa told The Big Project.
“Quarter three results will soon be released and will paint a worse picture than quarter two. Many of the big cement players in the northern emirates were in the red in the second quarter — posting losses or reporting minor profits — and quarter two was better than the last two months.”
The UAE, which has the largest construction market in the GCC, has seen a drop in sales revenues of 33.5% this year, according to the UAE Ministry of Foreign Trade.
Issa added: “Liquidity in the market is still poor in the UAE and abroad. Players like Turkey and Pakistan have an oversupply and are also exporting, but generally there is a drop in the overall demand. Even demand has been satisfied in Africa, where the projects market was booming.
Cement companies across the GCC also saw a 13.8% decline in top-line revenue during the first half of the year, according to the latest report by Global Investment House. In the same period, the sector also saw a 12.4% decrease in profits.
Kuwait, Qatar and Oman also saw sharp drops in sales revenues by 31.6%, 24.5% and 27.2% respectively. Saudi Arabia was the only GCC country that saw an increase in sales of 5.5% due to strong demand by new companies and stable project activity. The low cost of and proximity to raw materials, plus subsidised energy prices, meant Saudi Arabia and Oman continued to see the largest gross margins among GCC companies.
Saudi Arabia’s gross margins reached 52.7% in the first half of 2010 compared to 56% in the same period last year, while Oman’s gross margins reached 42.4% in the first half of 2010 compared to 44.9% during the same period last year.

Falling prices
But in the UAE, Issa said: “Prices have dropped again; they’re now at very unhealthy rates.”
In the past year, cement prices in the GCC averaged around US $65.6 per tonne during the first half of 2010 compared to $78.5 per tonne in 2009, reported the ministry.
According to the Dubai Chamber of Commerce, the construction sector was expected to rebound next year with developers in the UAE expecting a more promising 2011.
The study showed that firms were branching into new markets, switching their focus from private to public sector schemes, and forming alliances to win contracts in an increasingly competitive environment.
This trend was expected to continue in the short term with the UAE government’s drive to stimulate the economy by spending on infrastructure projects, particularly in
Abu Dhabi.
“We’re anticipating that quarter one of 2011 will be better than quarters three and four of 2010, if that’s the case everyone will breathe a sigh of relief,” said Issa, adding that he expected infrastructure projects including roads, nuclear power stations and ports to drive demand.

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