Gas shortage hurts profits of UAE cement companies

Gas shortage hurts profits of UAE cement companies
Published: 21 February 2008

A shortage of energy – particularly gas – combined with high oil prices and inflation in local and global economies – has contributed to a fall in profits of most UAE cement companies.

They said profits fell even though revenue increased on the back of rise in sales. The companies said the cost of production increased greatly as factories switched from scarce natural gas to high-cost diesel and heavy fuel oil to generate electricity.

Officials said the price of cement – which is capped by a gentlemen’s agreement – should be reviewed as it does not reflect the rise in costs.

Ras Al Khaimah Cement Company’s net profits fell 56 per cent to Dh54.9 million in 2007 compared to Dh125.7m the previous year.

The company blamed the fall on the huge increase in the cost of fuel and said its energy bills has risen from Dh96.4m to Dh145m.
 
Another Ras Al Khaimah company, Gulf Cement, saw a three per cent drop in profits to Dh231.7m last year. This happened even though revenues increased by 24 per cent (Dh159.02m) thanks to a 20 per cent increase in sales.

Ras Al Khaimah Company for White Cement and Construction Materials said its profits fell by 21 per cent due to high energy costs.

And initial results of the Umm Al Quwain Cement Industries Company reveal that net profits fell from Dh41.3m to Dh27.9m.

Ministry of Economy statistics show the UAE uses 17 million tonnes of cement per year. The price rose from Dh268 per tonne in 2006 to Dh276 per tonne last year.

“Due to shortage of gas, which is regarded as the main source of energy in the cement industry, factories are pushed to look for alternatives such as diesel or coal,” said Abdullah Al Sayah, General Manger of Union Cement Company of Ras Al Khaimah.

“Union Cement has decided to use coal and will change over from gas within two months. We started negotiations with international companies to import coal and will grind it in our factories. This will reduce costs.”

He said a shortage of gas production and the diversion of supplies to electricity plants were responsible for the reduced supply.

Sayah said he was concerned about the outlook for the industry because of the high cost of raw materials, labour, shipping, spare parts and energy. He said time had come to review the price of cement and added that talks on the issue were under way between the Ministry of Economy and the Cement Manufacturers’ Association.
 
Abdullah Al Saleh, Undersecretary for the Economy Sector, said: “There is a gentleman’s agreement between cement firms and the ministry to put a price ceiling on cement. Last year’s agreement stipulates that the price of a tonne of liquid cement would be Dh295 and the price of one bag Dh17.

“Current prices will be reviewed during the next meeting of the Contractors’ Association, the Cement Manufacturers’ Association and the ministry. Any increase or decrease will be decided on the basis of production costs.”

Mike Richardson, General Manager of Ras Al Khaimah Cement Company, said the shortage of natural gas supplies and the resultant use of diesel and heavy fuel in cement production were the major reasons for the drop in profits. The use of other fuels increased costs by up to Dh9m a month. “The Ras Al Khaimah Gas Commission informed us that the Boca sea gas field had seen a decrease in its production,” Richardson added.

“That affected its ability to provide factories with gas. We are currently looking at alternatives to gas.”

Fahem Abdullah Yousef Al Abdullah, General Manager of Ras Al Khaimah Company for White Cement and Construction Materials, called on the government to support factories that use large amounts of energy.

“Qatar, Saudi Arabia and Kuwait supported their industrial sectors,” he said.

“The price of a thermal unit in Qatar ranges from 20 to 30 cents, in Sudan it is 40 cents and in Egypt it is six cents. But in the UAE the price of a unit is $5 (Dh18.3), which is high compared to the prices in other countries. This will affect the competitiveness of factories here.”

He said prices might have to rise to avoid losses, and added: “We do not suffer only from high costs – we also face shortage of energy.”