Cement prices in the UAE have fallen 7.4 per cent, according to a recent report by Global Investment House.
Rizwan Sajan, chairman of Danube Building Materials, told Gulf News that "there has been a glut in the installed capacity vis-a-vis the demand.
"As a consequence there is great pressure on selling prices.
"Eroding profitability has constrained cement mills to operate at less than 70 per cent capacity".
According to the report, in just a year, the price of cement has fallen from US$91.70/t (Dh336.54) as of end-September 2008 to US$84.9/t now.
The Gulf Cooperation Council (GCC) construction sector, which grew from US$300bn in 2004 to US$2.67trn in the first quarter of this year, fell to US$2.1trn in the third quarter of this year.
The UAE, the second-largest construction market in the GCC, had a total project value of US$908bn as of September, which is 45 per cent of the total project value of the GCC.
According to Rizwan, "Greenfield projects and enhancement of capacities in existing mills led to enormous capacity additions in the sector. When demand reversed suddenly, it put pressure on selling prices.
"Over and above, production costs are on the rise but the weak demand hurts profibitability."
Out of all the GCC countries, the UAE has one of the lowest profit margins — 25 per cent — along with Qatar and Kuwait at 23 per cent and 28 per cent respectively.
Amr Abu Shabana, senior sales executive for Al Rahmani General Trading, said, "While the price of cement is coming down in the UAE because of lower demand, so is the cost of raw materials."
Saudi Arabia and Oman presently have the highest profit margins in the GCC at 53 per cent and 45 per cent due to subsidised energy prices and proximity to raw materials.
Saudi Arabia is also at an advantage compared to the rest with its proximity to consumer markets and cement plants while Oman has quick access to raw materials from its large reserves of limestone.
The report said: "The only positive thing in the industry is the increase in profit margins because of the installation of multi-fuel burners by the majority of cement players."