The 30 per cent fall in UAE cement demand this year will not be a surprise to anyone working in the industry.
Out of the 10 producers that MEED surveyed nine said the slump had been inevitable considering how few new projects are being initiated in the industry’s previous core market, the Dubai construction. Only the Abu Dhabi producer surveyed said it had not been badly affected by Dubai’s construction slowdown.
But the real threat to the UAE cement business is that the slower demand is causing some producers to sell a tonne of cement for as little as AED180 ($49), and cut-throat pricing is only going to exacerbate the current problems if it continues.
If a cement company only has one kiln, then it has to produce and subsequently sell its output. It cannot shut down operations and send its workforce home until the Dubai construction market revives. Unfortunately, such survival measures are only contributing to the current malaise.
But one positive result of the crisis is that because of the quality of cement produced in the UAE, foreign markets are opening up, both in the GCC and further afield in places such as Sudan and North Africa. Iraq has also recently brought in stringent quality standards for any cement imports, so it could become a potentially lucrative outlet for the UAE cement companies.
The main hope for the industry, however, remains Abu Dhabi. Every UAE cement producer hopes it will see some of the emirate’s vast stockpile of petrodollars as it spends heavily on infrastructure projects, such as its $20bn nuclear power programme.
With so many projects starting to break ground, Abu Dhabi does offer the best opportunity for cement producers in the UAE, but there are doubts about whether it will be able to fully absorb the market oversupply – and in 2010 the numbers suggest that it will be unable to do so.