Region’s combined cement profits surge 21 per cent off the back of Saudi construction boom and the UAE sees a recovery
An upturn in the GCC construction sector has proved a boon for the region’s cement producers in the first quarter of 2012. Cement prices only increased moderately, but the GCC cement sector reported a combined 21 per cent year-on-year increase in profits.
Cement producers in the six-country bloc reported combined net profits of $435.6m in the first quarter of 2012 compared with $359.5m in the same period last year, according to a report by Kuwait’s Global Investment House. Revenues surged 24.3 per cent to $1.26bn.
UAE cement companies rebounded to make a combined profit. All nine listed producers were in the black in the first quarter, compared with four companies reporting losses in the preceding quarter.
“The increase [in UAE profits] is due to higher cement prices, higher sales to neighbouring countries and a pickup in local demand,” says Global Investment House’s head of research Faisal Hasan.
Cement prices in the UAE collapsed from 2009 during the financial crisis and have struggled to rebound. The country’s Cement Manufacturing Association recently agreed to maintain prices within a range of AED170 ($46.3) and AED190 ($51.7) a tonne to prevent further erosion.
Overall profit in the UAE cement sector rose from a loss of $22.1m in the fourth quarter of 2011 to report a net profit of $29.7m in the first three months of this year.
In contrast to the UAE, which is still suffering from the post-crisis construction crash, the Saudi building industry is gathering pace, causing an upturn in cement demand.
In 2010, Riyadh approved plans to spend $385bn on infrastructure and development projects over a five-year period, while in 2011 plans were announced to build 500,000 housing units and build and expand hospitals.
The nine listed companies in Saudi Arabia increased sales volumes by 13.7 per cent to 39.1 million tonnes in 2011, with volumes from private producers up 1.7 per cent to 10.1 million tonnes, according to Emirates NBD.
Saudi cement demand grew 16 per cent year-on-year in the first quarter to 14.3 million tonnes, driven by the kingdom’s huge development plans. Average Saudi prices increased by 11.3 per cent year-on-year in the first quarter to $69.5 a tonne.
“The increase is due to strong demand arising around the kingdom which, in return, is mitigating the impact of the cement export ban,” according to Global Investment House.
Listed Saudi cement companies, excluding Hail Cement, posted combined net profit of $364.5m, up 23.6 per cent year-on-year. At the same time, Qatar-based cement companies reported a 16.6 per cent increase in profits, with revenues up 7.3 per cent to $96.7m.
Despite a moderate pickup in the UAE market, construction in Saudi Arabia and, to a lesser extent, Qatar will be the most robust drivers of GCC cement demand over the coming years.