KUWAIT: GCC cement sector witnessed a turn around after two years of decline in top line following the credit crisis wave that halted major real estate activity and construction projects affecting cement and building materials companies. GCC cement companies came out with strong 14.2 percent increase in top line revenue. Sector profits, however, increased by 2.7 percent in 2011. Revenues reached $4.6 billion in 2011 as compared to $4.0 billion. Net profits increased from $1,440 million in 2010 to $1,477 million in 2011. However, net margins witnessed an 373.3bps decrease during the period due to the fact, other income segment declined by 49 percent to reach $113 million. In addition, gross margins witnessed a 79.3bps decrease in 2011 to reach 38.6 percent in 2011 as compared to 39.4 percent in 2010, due to higher cost of sale which increased by 15.7 percent in 2011 to reach $2,810 million, according to a report by Global Investment House (Global).
Country wise, Saudi Arabia, Oman, UAE and Kuwait overturned the declining revenues in 2010 and all four countries reported increasing sales for 2011 except Qatar. UAE which witnessed declining sales revenue since 2008, enjoyed a 5.9 percent increase in sales to reach $940.0 million. On the other hand gross margin were at its all-time low of 4.2 percent. Also, net profit were negative for the first time since Global Research started to compile UAE cement data.
Oman witnessed a 12.8 percent increase in sales revenue reaching $342.3 million, the second highest revenue in the Oman cement history. However in earning result Oman reported a 39.4 percent decrease in profits for the year 2011. Kuwait reported a 5.4 percent increase in revenues to reach $66.9 million and posted a 47.1 percent decrease in net profits as compared to 2010. Qatar was the only GCC country reporting declining sales and profits. KSA posted a healthy 22.6 percent increase in sales revenue and a 25.2 percent increase in net profits.
Financial strength of cement companies continued to remain strong to wither any imperfection in the cement market as assets and equity increased by 4.5 percent and 4.4 percent respectively during 2011. On the other hand, debt witnessed a 2.7 percent increase to reach $2,497 million, however debt to equity ratio is down to 22.5 percent in 2011 as compared to 22.8 percent in 2010.
Cement prices in the GCC averaged around $64.9/ton in 2011, as compared to $68.3/ton enjoyed in 2010, a 4.9 percent decrease mainly due to decline in Kuwait, UAE and Oman where companies slashed prices to win contracts. On the other hand Saudi Arabia and Qatar witnessed slight increase in cement prices. On a CAGR basis during the period 2006-2011 average cement prices in GCC decreased 0.8 percent. Oman marked the largest decline of prices by 19.3 percent to reach $64.1/ton in 2011. Kuwait average realization prices reached $76.1/ton in 2011 as compared to $79.4/ton in 2010. On a CAGR basis, Kuwait cement prices increased 0.1 percent during the period 2006-2011. With major projects being implemented in Kuwait as a part of the development plan, cement prices in Kuwait are expected to increase going forward.
Qatar realization prices increased from $68.7/ton in 2010 to $70.1/ton in 2011, a 2.0 percent increase. Also, Qatar cement prices are expected to increase as demand expected to reach 5-8mn tons per annum during the period 2011-2017, the Global report said.
Oman, the country which started to feel a pinch of the crisis by posting higher sales revenue and declining profits for 2011 witnessed a huge 19.3 percent decrease in cement prices in 2011, the highest among other GCC peers. Also on a CAGR basis, Oman witnessed a 1.0 percent increase during the period 2006-2011. The decrease in prices is due to the excess supply from UAE cement companies. Oman average realization cement prices reached $64.1/ton in 2011, the second lowest in the GCC. Cement prices decreased form $79.4/ton in 2010.
As for the second largest cement producer in the GCC, UAE witnessed a 5.3 percent decrease in cement prices to reach $49/ton, this is because of the excess supply and low demand due to slowdown in real estate and construction projects. In addition, new cement companies have flooded the market bringing more pressure to cement companies. UAE continue to face pressure on its cement industry which is proved by declining profits. UAE is a strong economy backed by higher oil prices and strong development plans, time will heal the cement industry slowdown as the real estate activity picks up and more liquidity flows into the economy.
The largest cement producer in the GCC, Saudi Arabia, witnessed a increase in cement prices by 6.5 percent in 2011 to reach $65.3/ton. Saudi cement prices are considered the most stable in the region, ranging between a low average of $48/ton to a high average of $68/ton since 2003. On a CAGR basis, Saudi cement prices achieved a 0.1 percent increase during the period 2006-2011.
Saudi Arabia cement sector has always remained in the limelight over the past 3-5 years. Ever since the Kingdom banked upon diversification, the cement sector witnessed a tremendous pick up in the demand from less than 20 million tons in 2005 to 49 million tons in 2011. In the wake of increasing demand locally government in 2010 imposed a conditional ban on cement exports and with a further rise in demand, Saudi Arabia lifted the ban on cement imports recently.
According to recent figures the construction industry in the Kingdom is estimated to grow from its current $36.5 billion contract awards value in 2011 to close to $43.8 billion by 2013, representing a CAGR of 20 percent. This is because Saudi Arabia is in the process of setting up large projects to expand its infrastructure in order to further develop as a trade and economic power in the future. According to Saudi government officials, the Kingdom will spend an estimated $400 billion (SR1.5 trillion) on large infrastructure projects over the next five years. Additionally, the SR690 billion national budget, which is the largest state expenditure to date, the SR290 billion homebuilding fund represent a strategic incentive for the regional cement manufacturers.
© Arab News 2012
