With ongoing political turmoil in the Middle East forcing some governments to provide additional measures on top of huge pre-existing development plans, new GCC development projects and economic and political reforms are likely to benefit the cement sector, says a report by Global Investment House (GIH).
Recently-announced projects include 21 Royal Orders in Saudi Arabia including 500,000 housing units and Bahrain’s plan to construct 50,000 homes in an attempt to placate protestors in the small Gulf state. Meanwhile, GCC countries have launched a US$20bn aid programme for Bahrain and Oman (US$10bn each) to upgrade housing infrastructure.
Saudi Arabia is also placing an emphasis on infrastructure with US$154bn announced in the 2011 expansionary budget. Combined with the Ninth Development Plan (2010-14), GIH expects Saudi to be the front-runner in terms of regional cement demand growth with a three-year CAGR of 5.5% driving demand to 52.1Mt by 2013. Oman has also just announced its eighth five-year plan amounting to OMR43bn (US$112bn) – more than double the previous plan. A significant surge in demand is expected to be witnessed in Qatar largely due to preparations for the FIFA 2022 World Cup, while Kuwait’s Development Plan involves a US$125bn allocation with a significant portion set for the development of Silk City.
While the GCC economy is forecast to see a strong improvement in 2011 (+5.9% according to IMF estimates), the regional cement sector’s profitability is still feeling the impact of the global economic crisis. Regional cement companies registered a weak 11.7% decline in top line revenue in 2010 and a mere 0.4% rise in profits. Net profits increased from US$1440m in 2009 to US$1446m. UAE, Oman, Kuwait and Qatar markets continue to be pressurised by declining sales revenue and GIH believe the UAE is yet to reach the bottom.
Looking at individual country performances, Saudi Arabia reported a 10% YoY rise in 4Q10 demand to 10.9Mt after a 3Q decline. Unlisted players Riyadh Cement and Najran Cement benefitted most from the 4Q increase, absorbing 48.1% of the growth with total local dispatches up 98.7% YoY to 0.47Mt. Clinker and cement stocks across the country increased to 10.8Mt by end-4Q10 from 10.4Mt in 3Q10. This is the second consecutive quarterly increase after a decline in 4Q09.
Meanwhile, net income for Oman cement companies in 2010 was US$118.8m, down 13.5% YoY and sales revenue fell 25.9% to US$303.5m. Cement production stood at 3.8Mt compared to 4.9Mt in 2009. The country’s two domestic producers, Oman Cement and Raysut Cement, saw sales down 17.6% and 25.5%, respectively. However, going forward infrastructure development projects will take the biggest slice of Oman’s eighth five-year plan, boding well for local cement demand.
Consolidated revenues in the UAE declined 28.4% YoY to US$736.8m, attributed to lower sales volumes and a sharp fall in prices. With 49% of UAE projects on hold, it is now the second largest projects market behind Saudi Arabia. Abu Dhabi is expected to be the main driver of UAE growth as Dubai slowly recovers from the financial crisis.
Qatar continued to witness lower demand in 4Q10 and was also affected by an influx of cheaper cement from neighbouring countries. However, the situation looks set to improve as US$50bn will be spent on infrastructure and upgrades and US$4bn to build nine stadiums to host the World Cup. Some US$6bn will be spent on construction-related projects generating an additional 3-4Mt of demand. Consumption is expected to reach 5-8Mta over the 2010-17 period.
All cement prices in the GCC region fell last year and averaged around US$68.3/t in 2010 compared to the US$73.8/t enjoyed in 2009. The UAE witnessed the most marked decline of 26.9% to US$51.5/t. Saudi Arabia reported a decline of 2.4% to US$61.3/t last year as an export ban and additional capacity kept prices under pressure. However, thanks to new project implementation and increasing demand, prices in Kuwait and Qatar are expected to begin rising.