GCC cement makers Q3 profits down

GCC cement makers Q3 profits down
Published: 24 November 2008

The GCC cement sector saw a 15 per cent decline in profits in the first three quarters of 2008.

The profitability of the GCC cement sector listed companies was US$1.46bn (AED5.35bn) in the third quarter 2008 compared with US$1.72bn in the third quarter last year.

This is a decline of 15 per cent.

The two main sources of the decline were Kuwait, where profitability went down a massive 74 per cent, and the UAE, where profits fell 15 per cent.

"If these figures are for the first nine months, then it is not necessarily linked to the credit crunch. I would link it more to the structural frame of the industry ...

"And those who have built a lot of capacity may have been bitten by the cost of raw materials," Riad Bsaibes, chief operating officer of Amana Contracting and Steel Buildings Company, said.

Increased competition

Bsaibes said a possible reason for UAE companies suffering a decline in profitability is increased competition, which has led to increased capacity.

Another contributing factor is that the cost of imported clinker is steadily increasing as is the price of fuel.

Inadequate clinker capacities but rising cement grinding capacity means companies must import more cement to meet demand, which increases their margins further, said a Global Investment House report.

Qatar and Oman companies saved the day with increased profitability of 37 per cent and 11 per cent respectively.

"Keeping in view the liquidity crunch and the cash constraints, if we discount the projects worth by more than 50 per cent, still there would be ample demand which would be catering to profits of the cement companies in the GCC," said the report.

It is the real estate industry in Dubai that is the cause of all the worry, according to a separate report.

"As with other markets in the Gulf, the prevailing fear is if property prices fall in Dubai, then this may dampen building initiatives in Kuwait on shaky buyer sentiment," said the Beltone Financial Research report Construction and Building Materials Over-view.

However, the decline could be very good news for developers and end users.

"It should hopefully result in a drop in construction costs," Bsaibes added.