The cement industry in the UAE needs consolidation to overcome the current financial crisis, said a recent report by Nomura.
Building material industry in the country is fragmented with 11 integrated cement manufacturers, eight standalone grinding operations and four trading operations, said the report, Building materials and construction. "But cement names seem to co-operate as they sell at similar prices and have a common forum in the Cement Manufacturers Association," it said.
"Consolidation is required but constrained by cultural dynamics. While we believe consolidation is a possible way forward, we understand from our discussions with management of various companies that there is a cultural issue in terms of a company from one emirate acquiring a company from another," said the report.
It is in the absence of cement companies consolidating their businesses that leads to the need for vertical integration, it added.
The report argues that in light of significant capacity coming on-stream in the next three years and declining demand due to the slowdown in construction activity, clinker utilisation rates will fall by almost 25 per cent next year. "The clinker utilisation rates will fall from 100 per cent to 80 per cent in 2009 and 71 per cent in 2010," said the report.
Source: Emirates Business 24/7