UAE cement outlook negative
Dampened by a glut in production due to a marked slowdown in local demand as well as the increasing self-sufficiency of its neighbours, the outlook for the UAE’s cement sector remains negative even as it is seen improving in the rest of the GCC, the research unit of Global Investment House has said in a note.
Additionally, high input prices, lack of export opportunities within the region and a slowdown in local consumption of cement has led to an oversupply, squeezing margins of UAE cement manufacturers.
Cement price in the UAE further went down by 5.1 per cent to $50.4 (Dh185) per tonne in the first half of 2011 as compared to an average price of $53.1 (Dh195) per tonne in H1 2010, the Global report said. The price was a high $86 (Dh316) per tonne in H1 2009, and the current prices are down more than 41 per cent since then.
A slump in demand and the consequent decline in prices pushed six of the nine listed UAE cement manufacturers into the red during the first half of 2011. Consolidated net profits of listed cement companies in the UAE declined by 56.1 per cent to $19.4mn in H1 2011 as compared to $44.2mn during H1 2010, the report added.
Overall, UAE cement sector’s consolidated revenues went down by 2.9 per cent on a year-on-year basis to $464.2mn while Q2 2011 revenue was also down quarter-on-quarter by 6.3 per cent to $224.5mn.
“Reason for the decline in the revenue was because of low demand in the country along with lesser export opportunities regionally as other countries are also reaching self-sufficiency levels,” wrote Faisal Hassan, Global’s Head of Research.
“Gross margins of the sector continued to deteriorate and reached historic lows of 7.1 per cent in H1 2011,” he said. “The sector was operationally in losses of $6.9mn; however, contribution from non-core income portion added handsomely to the bottom-line. The contribution touched 123.6 per cent during H1 2011 as compared to 71.5 per cent in H1 2010,” the report noted.
Regionally, however, the pace of decline in the GCC’s cement sector profitability appeared to be slowing down with the consolidated cement sector profitability declining by 4.7 per cent year-on-year to $785.9mn in H1 2011 compared to a decline of 12 per cent year-on-year in H1 2010, the Global report said.
Saudi Arabia remains the only driver of GCC cement sector profitability with the net profit increasing by 13.5 per cent year-on-year in H1 2011. However, rest of the GCC countries continue to witness erosion in their profitability.
“Within GCC, we are positive on Saudi Arabian cement sector due to better demand supply situation as compared to other countries in GCC. Global Research outlook is Neutral for Qatar and Oman, and negative for UAE,” the report highlighted.
Cement prices in the GCC averaged around $66 per tonne in H1 2011, as compared to $68.6 per tonne in H1 2010, a 3.8 per cent decline due to demand weakness in the GCC, especially from the UAE.
Cement prices in all the GCC countries witnessed a decrease except in Saudi Arabia and Qatar. Oman marked the largest decline in prices by 14.4 per cent.This is due to depressed demand and the stiff competition in the local cement market.
Going forward, Global expects a decline in oil prices post Q2 2011 to benefit the local cement companies. “Companies in Oman and UAE are witnessing a huge decline in their gross margins due to increasing competition and increasing raw material prices. However, with decline in oil prices, we expect the Q3 2011 to benefit companies and expect them to report better margins,” it said.