UAE cement factories reduce prices by 6%

UAE cement factories have said that selling prices have dropped since Saturday by about six per cent, according to industry sources.

Bulk cement this week is being sold at about Dh300 to Dh310 per tonne, while prices of cement per bag have dropped from Dh16 to Dh15. Last week, bulk cement was being sold at about Dh330 per tonne.

This is in response to the Ministry of Economy (MoE) introducing a price cap for locally produced cement at Dh280 per tonne and Dh14 per bag. Many cement companies said the prices have been reduced but not to the extent of the MoE request.

Abdullah Mohammed Al Sayah, President of Cement Factories and Producers Group, yesterday said the price structure will benefit the industry. "I will not be able to give you an exact price at the moment but the prices have definitely dropped," he said refusing to elaborate further.

However, industry sources say factories will undergo severe losses if they bring down the prices to the levels proposed by the ministry.

"We should understand that the profit margin of cement factories is dwindling and with our heavy investments, through maintenance and new machinery, a sharp drop in prices will have a very negative impact," said Mustafa Gorgunel, General Manager at Union Cement Norcem. "I feel a better price, given the present circumstances, would be around Dh320 to Dh330. Even the current figure of Dh310 is not ideal for profitability," he added.

The MoE had earlier said that any decision would be taken in co-ordination with the factories based on the drop in the prices of oil and raw materials.

"But oil prices are not subsidised in the UAE and therefore we do not stand to gain with a global fall in the prices of oil," said Gorgunel.

According to a recent report by Global Investment House, GCC cement sector earnings, after years of high digit growth, ended in 2008 on a grim note, thanks to economic slowdown and the dwindling equity and real estate markets. Apart from a drop in demand, cost continued to put pressure on the companies, pushing down its margins as well as profits. Overall the sector ended 2008 with an earnings decline of 35 per cent to $1.4 billion (Dh5.14bn) as compared to $2.2bn in 2007.

On a country basis, only Qatar reported an earnings growth of 10 per cent. The most drop in earning was reported by Kuwait at 105 per cent followed by the UAE at 73 per cent.

Meanwhile, various governments in the region are trying to force a low cement price in their respective local markets in an effort to boost construction. Saudi cement producers have been urging to government to lift a ban on cement exports. "The government there wants to bring the prices down from SAR13 [Dh12.73] per bag to 12," said Gorgunel.

In June 2008, the Saudi government prohibited the export of cement to help reduce prices.

Meanwhile, according to reports, some cement companies are also stopping production. Eastern Province Cement, a Saudi maker of building materials, said it has stopped production at a plant for maintenance as inventories increased because of a government ban on exports. Cement production at the 3,500 tonne-a-day line will restart in four months, the company said yesterday. Maintenance work could last for four months, it said.

It also said that the export ban drove net profit down 37.5 per cent to SAR96.96 million in the first quarter of 2009, compared to the same quarter a year earlier.

UAE-based RAK Cement has also stopped production starting last week for maintenance work.

"It's a regular maintenance we carry out every two years. We are expecting the maintenance work to continue for a month. Normal production will resume hopefully from May 10," said a senior company official.

Meanwhile, Gulf Cement's second line has started its operation after stopping work for almost a month also due to maintenance. A senior official from the company yesterday said: "We started normal production from March 31. The line was temporarily shut for a month on account of maintenance."

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