GCC likely to face cement glut by 2011

GCC likely to face cement glut by 2011
11 November 2009

The GCC’s annual cement capacity will cross the 120Mt mark by 2011, glutting the market with the product, according to a recent report from Global Investment House (GIH).

The GCC project market, which rose from $300 billion (Dh1.1 trillion) in 2004 to $2.67trn in Q1 of 2009, declined to $2.1trn as of Q3.

"Within the planned projects, 25 per cent have been put on hold. As per our calculations, even if 75 per cent projects continue as per plan and of these even if 40 per cent are construction related, then it would result in an annual average cement demand of 90.6 million tonnes till 2017," said the report.

"Whereas with less projects continuing because of the economic uncertainty, the demand for cement has declined because of which the utilisation rate of cementers has gone down to an average of 75 per cent as of 9M-2009. With the continuing capacity buildup and less demand we expect the utilisation rates to fall in the range of 65-70 per cent until the project market picks up."

Meanwhile, the net profit of the GCC cement sector witnessed a decline of 18.7 per cent to $1.1bn in 9M-2009 as compared to $1.37bn in the corresponding period last year.

"As per our previous expectations, outlook for the sector is still dicey as in Q2-2009 its net profit rose 46 per cent quarter-on-quarter while Q3 profit is down 50.6 per cent on a q-o-q basis," said the report.

Average realisation prices as of 9M-2009 have declined on an average six per cent in GCC when compared with those of 2008 (see table). Countries with relatively stable prices are Saudi Arabia and Oman while the rest have witnessed a major fall. With capacity buildup continuing, further pressure on cementers is expected.

"The only favourable thing is the focus of many cementers in the region to curtail their costs through multi fuel burners and by opening facilities near to raw material quarries. Most of the UAE cement companies are focusing more on these measures and we expect if the prices and utilisation rates continue to decline, more and more cementers would be focusing on cost control measures," said the report.
Published under Cement News