Ducab aims to maximise efficiency

Friday, Nov 06, 2009

Gulf News

Dubai While many industries worldwide have reduced operations, production and halted expansion due to the global economic slump, Dubai Cable Company (Ducab) is investing in new facilities.

"This shows that the market is revamping which is a very positive sign for Ducab," Ahmad Al Shaikh, chairman of Ducab, told Gulf News in an exclusive interview.

A steep decline in base copper prices might reduce last year's turnover of Dh3.35 billion, although production and supply have not declined.

Despite this, the country's leading cable manufacturer is investing Dh875 million in capacity expansion, including a Dh250 million plant in Qatar, a Dh150 million special cables unit plant and a Dh500 million high-voltage cable plant in Dubai.

Ducab, which employs about 980 professionals, is also restructuring its production to maximise efficiency.

In an interview, Al Shaikh elaborated on Ducab's business plan and the market situation:

Gulf News: You are expanding capacity. Could you tell us more about your expansion?

Ahmad Al Shaikh: Despite the current global economic crisis that has impacted the UAE and Gulf Cooperation Council (GCC) markets, we feel the capacity of Ducab will need to be increased as demand is expected to pick up from 2011 onwards when more projects are implemented.

When the time comes and demand starts to grow, Ducab will be prepared to provide the cable and copper required in the market. Ducab's copper casting plant has the ability to expand it's production capacity from 110,000 tonnes per annum to 160,000. Ducab, being the only cable manufacturer in the UAE who has its very own copper casting plant, was designed and built as part of Ducab's backward integration plan.

The expansion of Ducab has already been planned, approved and budgeted for, while part of the expansion has already been carried out as well.

Ducab is investing in capacity expansion. We will soon commission a Dh125 million special cable's unit plant, which is currently undergoing testing and commissioning.

How much is Ducab investing in the expansion?

We are investing more than Dh875 million in expansion, including a Dh500 million project, to set up a high-voltage cable factory that will help us meet the growing demand for high-voltage cables in the Gulf.

We will soon establish a 25,000 tonne capacity cable manufacturing plant in Qatar, set up with an investment of Dh250 million.

Could you elaborate on the high-voltage cable project?

The high-voltage cable (400 kv) project will be 50 per cent owned by Ducab while the rest will be equally split between Dubai Electricity and Water Authority and Abu Dhabi Water and Electricity Authority.

With two major customers of high-voltage cables on board as shareholders, the project is guaranteed to offer a faster return on investment.

The high-voltage unit will be operational by the end of 2010. Construction of the project has already started and we expect the equipment to arrive by the second half of next year.

With this, we will manufacture high-voltage and extra high-voltage cables. We will be the first manufacturers of such cables in the Middle East. So, it is an important project for us and a very significant development in our business.

How big is the UAE's and Gulf's cable market?

The UAE cable market demand is about 110,000 copper tonnes per annum in which Ducab has roughly 50 per cent market share. Cable demand across the GCC is about 670,000 tonnes per year.

We are striving to achieve a 25 per cent market share in the region.

The regional cable market has not been affected as badly as the global market.

This market has its strengths. We serve one of the markets that has high growth potential. We need to gear up production for future demand uptake.

What is the current market situation in the global cable industry and how are you coping with it?

A steep decline in base copper metal prices from the peak of $8,300 (Dh31,000) per tonne in early 2008 to a price level of $2,800 in late 2008 in the international market will impact in Ducab's annual turnover this year.

Last year, our turnover reached Dh3.35 billion, up from Dh2.42 billion in 2007.

Fluctuation in base copper prices might reduce the turnover. This year, we expect this to reach Dh2.5 billion, simply due to the lower metal price.

With commodity prices, especially base copper price down, how are you dealing with uncertainty in the market?

Although the UAE market and especially the real estate and construction sectors have been affected by the global financial crisis, we remain positive about the market.

The issue of market uncertainty is more psychological and not necessarily driven by market reality.

It's not as bad as it seems. There are hundreds of construction and real estate projects that are still going on that will drive the future demand in the market.

Do you hedge cable?

Yes. A certain percentage of our purchase is hedged.

You said you are restructuring production facilities. Why and how?

Yes, we are restructuring our production facilities to maximise efficiency.

We have three production plants, where we are planning to streamline the production operation by regrouping the products to maximise production efficiency and increase cost savings.

After the restructuring, each plant will manufacture certain types of cables. This will help us improve efficiency and reduce production costs.

This will help us in managing inventory and logistics better.

Any plans to diversify business, such as starting value-added cable manufacturing or developing end-user products?

No. We have a wide and diversified product portfolio. We would like to remain in the cable manufacturing business — our core business.

Having said that, we would also like to venture into developing special cables.

Our products could help develop other industries as many of them are used as feed materials for value-added products. In future, there could be special industries developed based on our products. However, that would be for others to develop.

What is your plan to expand regionally?

As I said, we are in the process of commissioning a plant in Qatar. We have started our commercial operations in the Saudi market. Currently it is a sales and marketing operation.

If we see enough demand, then we might consider investing in the Saudi market, but that will happen after careful study of the market.

What is the market outlook?

Despite the current market situation, the outlook remains positive.

We have witnessed a 15 per cent growth in cable demand year-on-year for the last few years. The turnover increase was more, simply due to high material costs.

The demand could pick up further from 2011 onwards once the economies recover and register higher growth.

How long do you think the growth could be sustained?

At least until 2018 or 2020. This projection is based on the projects line-up in the region.

With oil prices appreciating, the Gulf countries will increase spending in infrastructure, power and utilities that will continue to create demand for cables.

Besides, with market saturation in the west, many cable plants might not be able to sustain production due to high costs.

In such a situation, our plants could remain a viable alternative in supplying cable in the global market.

By Saifur Rahman, Business Editor