Gulf firms cement income as construction picks up

Dubai Cement companies in the Gulf witnessed a 24.3 per cent increase in revenues in the first quarter, touching $1.26 billion (Dh4.62 billion) as construction picked up in certain parts of the region.
The industry’s profits rose to $435.6 million, compared to $359.54 million in the first quarter of last year, a growth of 21.2 per cent.
However, according to Global Investment House’s report, net margins suffered a fall of 90.4 basis points during the period.
Gross margins witnessed a 233.6 basis point increase in the first quarter to 43.7 per cent compared to 41.4 per cent, which was due to an increase in selling prices accompanied by a drop in prices of fuel.

“[The] UAE and Oman, which used to report declining sales revenues, reported higher revenues due to the better operating [environments] in both countries. [The] sales revenue of UAE firms increased by 7.7 per cent to $258.1 million, bringing gross margin back to double digits of 10.5 per cent,” the report said.
Strong growth
Saudi Arabia achieved strong growth of 34.7 per cent in revenue during the quarter, outperforming the UAE, Qatar and Oman.
Dr J.R. Gangaramani, chairman of the Al Fara’a Construction Group, told Gulf News: “Cement is the backbone of any infrastructural growth globally. In recent years, this industry has witnessed rapid growth mainly due the massive potential of infrastructural growth throughout the UAE, attracting many major players to set up their plants here. We are fortunate enough to be at the epicentre of the infrastructural growth, that is, the GCC. There has been a huge investment flow into the real estate sector of most GCC countries in recent months.”
His group owns Unibetton Readymix, one of the largest suppliers of ready-mix concrete.
“These [developments] have a positive implication for the GCC cement sector, which has an annual production capacity of around 23 million tonnes. [The] purchase of cement by Unibeton Readymix during 2011 was around 1.6 million tonnes.”
Saudi Arabia is witnessing a significant rise in demand because of its development plan. In March 2011, King Abdullah Bin Abdul Aziz ordered the construction of 500,000 housing units, as well as the building and expansion of hospitals. He also ordered the injection of capital into specialised credit institutions to facilitate debt write-offs and increase mortgage lending.
This will help “shore up demand for cement as more housing units are in demand,” the Global Investment House report said.
Rizwan Sajan, chairman of Danube Building Materials, said the UAE construction industry had started picking up this year.
“The second quarter of this year was much better than the first quarter on positive signs in the UAE,” Sajan said.
Omani companies witnessed a 16.7 per cent increase in revenue to $100.3 million.
However, costs increased 27.5 per cent to $65.5 million, thus pressuring gross margins which declined to 35.2 per cent in the first quarter compared to 40.7 per cent in the same period last year. Net profits rose 39.4 per cent to $31.1 million.
However, Raysut Cement’s sales revenues fell by 8 per cent to 14.9 million Omani riyals (Dh140.24 million), compared with 16.3 million riyals during the corresponding quarter last year.
Severe competition
“The decline in profit is attributable mainly to severe competition faced in both the domestic and export markets impacting both volume and price, which started from the later quarters of the previous year,” Mohammad Bin Alawi Ali Muqaibal, chairman of Raysut Cement, said.
The report paid tribute to the financial resilience of cement companies, which it said could manage differing prices in the future.
Qatar also witnessed increasing sales revenue, posting a 7.3 per cent increase in turnover and managing a 16.6 per cent increase in net profits.
Dubai Cement prices in the Gulf averaged around $66.7 (Dh245) per tonne in the first quarter of this year, compared to $66 per tonne in the first quarter of last year, an increase of 1.1 per cent, due rising demand in the GCC, especially from Saudi Arabia.
“All cement prices in the GCC witnessed a decrease except Saudi Arabia and Qatar. Kuwait marked the largest decline of prices by 4.5 per cent to reach $75.8 per tonne in first quarter of this year when compared to $79.4 per tonne during the same period a year ago,” a Global Investment House’s report said.
Kuwait in the lead
Kuwait continues to lead other GCC countries in terms of average cement prices.
Prices in the UAE fell 0.4 per cent to $53.1 per tonne in the first quarter of this year as demand picked up.
Qatar cement prices increased to $70.1 per tonne in the first quarter of this year, additionally the government continue to cap cement prices at $68.7 per tonne.

By Naushad K. Cherrayil, May 30, 2012