GCC decline in profitability slows, Saudi Arabia outlook positive – GIH Research

GCC decline in profitability slows, Saudi Arabia outlook positive  – GIH Research
24 August 2011

The pace of decline in GCC cement sector profitability appears to be slowing down, according to recent figures by Global Investment House. The consolidated cement sector profitability declined by 4.7% YoY to USD785.9m in 1H11 compared to a decline of 12.0%YoY in 1H10. Saudi Arabia remains the only driver of GCC cement sector profitability with the net profit increasing by 13.5% YoY in 1H11. However, rest of the GCC countries continues to witness erosion in their profitability.
Cement prices in the GCC averaged around USD66/t in 1H11, compared to USD68.6/t enjoyed in 1H10, a 3.8% decline due to demand weakness in the GCC, especially from the UAE. Cement prices in all the GCC countries witnessed a decrease except Saudi Arabia and Qatar. Oman marked the largest decline in prices by 14.4%, GIH notes. This is due to depressed demand and the stiff competition in the local cement market.
Demand estimates for 2012 provided by government authorities to the companies in Qatar are higher than current demand of 3.5-4Mta. GIH estimates average demand in Qatar during 2012-17 to be 4.8Mta. The country’s sole producer, Qatar National Cement Company, is to increase cement capacity by 0.93Mta to 5.36Mta. The company also announced another special mill for grinding slag, which is used in the production of blended cement.
The decline in oil prices post 2Q11 is expected to benefit the local cement companies. Companies in Oman and UAE are witnessing a fall decline in their gross margins due to increasing competition and increasing raw material prices. However, with decline in oil prices we expect the 3Q11 to benefit the company and expect them to report better margins.
Published under Cement News