Cement shares in the United Arab Emirates and Oman fell after second-quarter profit at Ras Al Khaimah Cement Co. plunged as a shortage of gas supplies forced it to use more expensive fuels.
With gas scarce, cement makers in the UAE are turning to imported coal to fire their furnaces to cope with surging demand for cement as the government of the world’s sixth-largest oil exporter invests petrodollars in infrastructure projects.
RAK Cement blamed the gas shortage for the drop in its second quarter earnings, which fell 56.5 per cent to AED42m (US$11.44m).
"This decrease was due to much higher energy costs. Restrictions on the natural gas supply ... intensified during the second quarter," the company said in the statement posted on the Abu Dhabi bourse Web site.
"These restrictions resulted in the consumption of more expensive liquid fuels and limited clinker production," it said.
Shares of RAK Cement fell 3.81 percent to 2.27 dirhams percent in Abu Dhabi, paring a 14 percent gain this year to Wednesday’s close. Gulf Cement Co. declined 0.33 percent and Union Cement fell 0.86 percent.
In Dubai, National Cement Co. dropped 4.76 per cent, and in Oman, where oil production is declining as fields age, shares of Raysut Cement Co. fell 0.88 percent.
"The shortage of gas is a sector-wide problem," said Khaled Hamza, head of research at Abu Dhabi-based Noor Capital.
"Coal will save on margins but it will have working capital implications, meaning companies will have to maintain stocks of coal as it needs to be imported," he said.
Dubai and Abu Dhabi started importing gas for the first time this month, taking supplies from Qatar to meet rising demand. Oman will start receiving Qatari gas next year through the Abu Dhabi-based Dolphin Energy Co. project.
In the northern emirate of Ras al-Khaimah, some companies have already imported coal from South Africa to burn in furnaces, while others are thinking of making the switch.
Ras Al Khaimah Cement is carrying out a feasibility study on switching to coal from gas but hopes that gas supply will remain sufficient, a company official said last month.
Fujairah Cement Industries and Gulf Cement are already importing coal, traders said in June.