Analysis

Cement uncertainties

Emirates Cement Company CEO Antoine Duclaux and Jebel Ali Cement director Pierre Issa comment on the ups and downs of the region’s cement industry

Emirates Cement Company, Antoine Duclaux, Jebel Ali Cement, Pierre IssaPlease tell us more about your expansion in the UA E?

Antoine Duclaux: Lafarge took over the Orascom Cement activities in the region and as such started to operate the Fujairah plant in early 2008. Lafarge was already in the UAE through their concrete activities in Dubai.

Pierre Issa: We had a small plant on Sheikh Zayed road from 1978. We started producing slag cement in 1994 and to cater to increased production we moved to Jebel Ali in 2006.

What is your total cement capacity?

Duclaux: The cement capacity today is 3.2 MT and a 2.7 MT clinker.

Issa: We can produce up to four million tons of cement at our Jebel Ali plant. This is a strategic location as it’s very close to Abu Dhabi and a lot of developments are moving south.

Do you have any further plans to expand in the Middle East region?

Duclaux: In the Middle East, Lafarge has cement assets in Jordan, the UAE, Iraq and one project in Saudi Arabia and another in Syria. We plan to expand into Iraq in the short term.

What is the current price of cement?

Issa: Selling price varies depending on the emirates. On average our selling price in the UAE is AED 230-240 (US $63-65). The big variance was in July and August of last year. We saw a continuous monthly drop in demand and prices from January to November, but it has been quite stable since with only minor variations.

Duclaux: The current price of 200-220 AED/t factory is not sustainable in the mid-term since operators are not recovering their costs at that level.

Do you anticipate a rise in cement prices in the UA E in the near future?

Duclaux: It is expected that cement prices will have to increase to recover the production costs, which have strongly increased recently due to a rise in power price from the local authorities. Cement prices will likely increase. To what level is unknown.

Issa: We do expect prices to increase, but it won’t improve our margin. Increases will be due to growing transportation costs due to fuel and power costs.

How do you keep the cost of cement production low?

Duclaux: The main cost factors are not in the producers’ hands; power is regulated by the government, coal depends on the international market and salaries are linked to the local environment. At Lafarge, we are benefiting from the group’s best practices to reduce our costs and operate with a slim structure.

Issa: Cost is something we look at every day, including raw materials, efficiency of operations, equipment, power consumption and overheads. There is more leverage for buyers to negotiate with suppliers now as there are fewer buyers in the market. If you have fixed parameters for cost control you’ll always be ahead of the curve.

How has demand for cement varied over the past 18 months?

Duclaux: 2008 ended at 21 MT domestic market, whereas 2009 closed at 18.5 MT.

What demand have you forecast in the UA E over 2010?

Duclaux: 2010 is quite uncertain and our forecasts lie around 15 MT.

How does supply and demand compare in this region currently?

Duclaux: The supply and demand is contrasted from one country to another. Oman and Qatar are short, Saudi Arabia tends to be balanced and the UAE is long like Pakistan. In Dubai, the demand has sharply dropped, whereas Abu Dhabi remains stable to small growth.

Issa: Roughly from January 2009 to today there has been a 38% drop in demand across the UAE, this was reached in September last year. Since then, it has been stable with minor ups and downs in price. But there is a big oversupply right now.

What trends have you witnessed in UA E projects and their implementation of cement?

Issa: There is a push in the south from project demand in that region, but there are still lots of projects that are ongoing in Dubai, Sharjah and the northern emirates, including Ajman. While there is demand across the UAE, there is no longer an over demand like that seen in 2008.

How have you adapted operations to cater to the reduced demand?

Issa: We’ve reduced operating hours and production, and we’re looking at different operations to drive demand.

How can the market change for the better in 2010?

Issa: It is a tough market so we would like to see more transparency about projects that are on hold. Then we can forecast production timelines and capacities. We need more information about upcoming projects over the next two to five years.

Jebel Ali Cement recently became the emirate’s first cement company to receive the Dubai Quality Appreciation Programme, please tell us what this involved.

Issa: Everyone looks at quality in a different way; quality of performance, operations, people and so on. We decided that the award would be a great recognition of our efforts so we applied to the programme in April 2009 and received a lot of support, such as training seminars. We reviewed our processes, management, environmental policies, internal communications, safety standards and other areas.

Do you export cement? If so, please outline your main export markets.

Duclaux: EMCC exports to Oman and a little to Qatar; two of the main export markets. Other players are exporting to Sudan and Kuwait. Exports will keep increasing due to the local oversupply.

Issa: Our markets are split as follows: Dubai; 50-70%, Abu Dhabi; 30%-plus and export markets make up 10%.

Do you strive to minimise the negative environmental impact of producing cement?

Issa: We started with the design of the plant. All equipment is under five years old and adheres to high European standards. We have very large covered storage area, lots of filtration and produce cement using limestone, a natural material.

Duclaux: Lafarge is an international player and applies the European standards. Our-up-to date European technology enables us to minimise any impact on the environment (through filters for example).

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