Demand for cement to remain steady in Oman: Study

Combined production capacity of two local producers to increase to 8.4 million tonnes per annum.

  
A worker carries a sack of cement inside the hull of a traditional schooner headed for Sumatra island at Sunda Kelapa port in Jakarta. Image used for illustrative purpose

A worker carries a sack of cement inside the hull of a traditional schooner headed for Sumatra island at Sunda Kelapa port in Jakarta. Image used for illustrative purpose

Reuters/Beawiharta Beawiharta
28 August 2016
Muscat: Demand for cement in the Sultanate is expected to remain steady backed by the ongoing construction activities for developing infrastructure projects.

As the government's investment drive has been supportive for the construction industry, Oman's cement demand exceeds the production capacity of the two local producers -- Oman Cement Company and Raysut Cement Company -- and the country continues to be a net importer of cement, according to a research note released by Al Maha Financial Services.

"Demand for cement in the last couple of years has remained healthy enabling the local producers to achieve 100 per cent sales of their produced quantities, the report said, adding; "On the realisations front, the last few years have witnessed stabilisation in prices at around OMR25 per tonnes. However, excess capacities from the neighbouring producers continue to weigh on prices in the domestic market."

For the first six months of this year, average realisation stood at OMR24.92 per tonnes, against that of OMR24.96 per tonne during the corresponding period of last year while sales volume grew in line with production at 10.8 per cent on a year-on-year basis to 3.2 million tonnes.

New capacity

Combined production capacity of the two local producers is set to increase to 8.4 million tonnes from 7.3 million tonnes per annum, mainly from Oman Cement's fifth cement mill that will commence commercial production this year. During the first half of this year, the company's fifth cement mill was commissioned and is in the testing phase now. The mill with an annual capacity of around a million tonnes is expected to reach full utilisation over the next couple of years.

"They (Raysut Cement and Oman Cement) have a combined market share of around 50 per cent in Oman, while the balance demand is met by neighbouring producers, mainly by excess capacities from the UAE, which pose stiff competition."

Raysut Cement too has completed the construction of its Duqm terminal, which is expected to start commercial operation this quarter. It is also upgrading its gas supply station in Salalah, which will add about 130,000-140,000 tonnes per annum cement capacity to its existing mill. At its subsidiary, Pioneer Cement in the UAE, work is in progress for the additional capacity of 12,000 tonnes silo with 4 compartments, to be commissioned by the end of November, 2016.

Oman Cement and Raysut Cement have registered a new Company -- Al Wusta Cement Company -- in joint venture with the Duqm Special Economic Zone Authority. The new company proposes to set up a cement plant in the near future, subject to detailed feasibility studies. Once the proposed cement plant is set up and operational, it will add value to the two players as well as help the overall domestic cement industry in light of competition from neighbouring countries.

The Sultanate is the core market for locally produced cement, with around 70 per cent of the sector's revenue coming from local sales and the balance 30 per cent mainly from Raysut Cement's exports to Yemen and East Africa. Oman Cement continues to have a strong hold of the northern market with its plant located in Muscat, while Raysut Cement mainly caters to the southern region of Oman and its export markets from its plant in Salalah. Raysut Cement's subsidiary, Pioneer Cement, in UAE focuses on both UAE and the northern parts of Oman. The local producers also face a challenging market as a result of oversupply from competitively priced imports.

Infrastructure development

The Oman government has been steadily continuing its expenditure on infrastructure projects such as roads, ports, airports, railways, special economic free-zones, integrated tourism complexes and related facilities to broaden the economy. Improving the country's transportation, logistics and tourism sectors remains a key focus, the government is looking to borrow anywhere between $5 billion and $10 billion from abroad to fund its diversification plans. As per industry reports, Oman's construction industry is expected to see real growth in value of 3.4 per cent in 2016 to OMR2.21 billion, supported by the continuing government spending. Oman is also liberalising the investment side to allow private sector involvement in infrastructure projects which is expected to drive the construction industry further.

Challenges ahead

Of late, Oman's cement producers face certain challenges, mainly on the operational side in view of the recent cost escalations including the natural gas price hike, the report noted. The increase in natural gas price has had a substantial impact on the cost of production of cement locally and going forward an increase of 3 per cent each year would further impact profitability. As per company disclosures, Oman Cement's direct expenditure due to the gas price hike went up by OMR6 million in 2015 and for Raysut Cement, the cost escalation on account of the same was OMR5.3 million compared to the previous year. Pricing pressure is expected to continue and there is limited probability for an improvement in realisations in the near term.

© Times of Oman 2016