UAE cement focus
Written by Peter Edwards, Global Cement Magazine
Monday 19 November 2012
The United Arab Emirates (UAE) is a federal state comprising seven distinct Emirates, namely Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah and Umm al-Quwain. Each of the Emirates is governed by an absolute monarch known as an Emir. The UAE itself is governed by a central president from the capital Abu Dhabi, whose main role is representation of the Emirates. The constitution of the UAE is only concerned with the relationships between the seven Emirates and has no role in deciding how individual Emirates are governed. The UAE has 11 cement plants, but its capacity way outstretches consumption. Today, it is forced to export the commodity to countries, both near and far.
Introduction and economy
The seven Emirates that comprise the United Arab Emirates (UAE) are located on the east of the Arabian Peninsular, to the south east of Saudi Arabia and to the north east of Oman.
The landscape of the UAE is dominated by deserts and as a result there are few populated areas that are not located on the northern coast. Around 85% of the country's 5.31 million inhabitants, many of whom are non-nationals, live in urban areas.1 Many live in the north east, close to the economic powerhouse of Dubai.
Long-term protectorates of the United Kingdom, the Emirates (along with Bahrain and Qatar) gained independence in 1971 after a 1968 decision by the UK government that it could no longer afford the costs of protecting them. This move could now be seen as slightly short-sighted in light of oil discoveries in the mid- to late-1960s.
The UAE's first oil exports left Abu Dhabi in 1962 and production was in full swing by the mid-1970s. In the forty-or-so years since then, the UAE has been transformed from an impoverished collection of small kingdoms into a regional economic hub. Today it enjoys the second highest GDP/capita ratio on the Arabian Peninsular after Qatar, at US$48,800 in 2011.1 Like other countries in the region, it derives most of this wealth from oil reserves, with oil providing nearly 85% of export revenues in 2010.1
Indeed, industry comprised 43.9% of the employed workforce in 2011, with services contributing 45.3%. It is unsurprising, given its desert location, that agricultural activities employ less than 1% of the workforce.1
The cement industry in the UAE has seen rapid expansion in the past two decades, as can be seen from Figure 1. Since the early 1990s production has increased from around 5-6Mt/yr to over 21Mt/yr in 2008 at the peak of the global construction boom.
Much of the expansion over this period was brought about by private players that were encouraged by the government, which itself was heavily involved in ownership of the industry in the 1970s and 1980s.
In the early 1990s expansion was underway at Fujairah Cement Industries at Fujairah and at Ras al-Khaimah Co. for White Cement and Construction Material in Ras al-Khaimah. In 1997 the Ras al- Khaimah cement company started construction of a 1Mt/yr plant in Ras al-Khaimah, which was completed by 2000.
By the mid-2000s many projects were under construction to help cope with the demand for cement from large, government-led construction projects. Cement prices, as low as US$2.40/bag in 2003, rose to US$6.80/bag in June 2004. Imports rose to meet the higher demand seen, which soon saw prices fall back below US$4.00/bag.
Due to the imports, the country was ripe for increased domestic production. A raft of new private cement projects were announced that year, with Al-Ain Cement Co. proposing a 7500-10,000t/day plant in Fujairah, Union Cement Co. proposing an increase to the output of its Koher Khwair plant with a new 10,000t/day clinker line, Gulf Cement proposing a 7500t/day expansion of its plant and Jebel Ali Cement awarded a contract for the construction of a 2000t/day facility at Jebel Ali in Dubai.
By 2007 the number of cement producers in the UAE hit double figures with 10 integrated lines and another nine grinding facilities, grinding material from as far afield as China. In this year capacity rose to 27.2Mt/yr, with major producers like Cemex and Lafarge seeking to join smaller producers in the hunt for a piece of the seemingly endlessly-demanding UAE market.
Binani Cement, owned by Indian conglomerate Braj Binani Group, ramped its cement capacity from 0.5M/yr in 2005 to 2Mt/yr in 2009 with two rapid expansion projects.
Sharjah Cement increased its cement capacity dramatically in the 2000s, with capacity rising from its original 0.25Mt/yr to 1.8Mt/yr in 2007, although its total grinding capacity is 4.25Mt/yr.
Fujairah Cement Industries also increased its capacity, going from 0.85Mt/yr in 1995 to 1.5Mt/yr in 2004 and 4Mt/yr by 2010.
In 2008 the UAE was still importing cement, to the tune of 5Mt/yr, but in 2009, cement production decreased for the first time in many years as the global economic crisis took hold. UAE cement production dropped by 13% compared to 2008, when cement consumption hit an incredible 4345kg/capita. Imports were wiped out and prices crashed from US$136/t in mid 2009 to US$54/t in January 2010.
Above: Map of the UAE, with key cities and cement production plants. (click to open full size PDF version)
|GDP (2011 est.)2
|GDP/capita (2011 est.)2
|Integrated cement plants4
|Average integrated capacity||2.82Mt/yr|
|Capacity including grinding4||42.4Mt/yr|
Above: Summary statistics for the UAE and its cement industry.2,4
Recent financial results5
With some industry experts calculating an overcapacity of 27.6Mt/yr (see Yves de Moor's column in the November 2012 issue of Global Cement Magazine), there have been serious financial problems for some UAE cement producers in recent years, all of whom are battling over a decreasing market. So far in 2012 the situation appears to have improved for those companies releasing financial reports, although Gulf Cement, the UAE's largest cement producer, actually turned in a net loss in 2011 of US$15.0m.
In the first quarter of 2012 the company returned to profit, making US$0.8m. In the first half of 2012 the company barely made a profit, making just US$17,700.
Umm Al-Qaiwain Cement, however, saw its net profit increase by 65.7% year-on-year in 2011 compared to 2010, reaching US$2.81m and Sharjah Cement has announced a US$3.5m net profit for the first half of 2012, an improvement from a US$0.6m loss in the first six months of 2011. Its revenue was up by 14.5% to US$87.5m from US$76.4m.
Meanwhile, Union Cement posted a profit of US$5.6m, which, like Sharjah, saw an improvement from a loss in the first half of 2011. It lost US$4.1m in the first half of 2011. Union's sales revenue was down marginally year-on-year to US$88.3m, a drop of 0.2%.
Gulf Cement also made an improvement year-on-year, increasing its revenue by 14.9% from US$35.4m to US$40.7m. However, the company went from a profit of US$3.64m to a US$0.78m loss.
Earlier, 2011 was a particularly poor year for UAE cement producers, with gross margins falling to historical lows of 7.1% in the first half of the year according to Global Investment House.
From importer to exporter5
As additional capacity came online the UAE flipped from cement importer to cement exporter. In 2012 it is estimated that the Emirates will consume around 15Mt/yr, although capacities, including grinding facilities as well as integrated plants, have risen to the 40Mt/yr-plus region. Gulf Cement, the UAE's largest cement producer, currently reports that it now exports to 11 countries.
Where to export?
Exports have an increased emphasis because many of the Emirates' smaller construction projects were halted during the economic downturn although some major construction works like the Burj Khalifa project (the world's tallest building) and the Al Maktoum International Airport continued.
However, the UAE is very poorly situated to take meaningful advantage of its massive cement surplus. It is positioned next to Saudi Arabia, which has the largest cement capacity on the Arabian Peninsula and itself enacted an import ban on cement in February 2012 due to its own overcapacity. The UAE's other close neighbour Iran also has a lot of cement and the perenially-struggling Pakistan cement industry is just a short trip through the Gulf of Oman.
One better opportunity is Oman, which currently suffers a cement deficit due to strong demand among self-build projects. However, this country is not able to absorb anything like the volumes that the UAE industry is capable of producing.
In 2009 Binani Cement set up a subsidiary company in Republic of Sudan to help distribute its cement in the growing markets of Sudan, Djibouti, Ethiopia, Tanzania and other east African countries (as well as Kuwait).3As east African countries develop, they are demanding more and more cement, which is not always easily sourced domestically, a potential new export market for the UAE's oversupply. (Our columnist Yves de Moor suggests a radical solution to this mis-match). However, this region, down to as far south as Mozambique, receives cement from a wide range of nations as well as the UAE, meaning that even this market is tricky for the UAE to sell into at present. Vietnam is a particularly strong competitor in this regard.6
Although there are some limited signs of increased domestic demand as 2012 draws to a close, the UAE cement market is still vastly over-supplied for the reasons described above. 2011 saw economic growth of 4.9%,7 although that level is expected to more than halve to 2.4% in 2012.8
From a financial perspective, it seems that 2012 will offer companies an improvement over 2011,5 although that year saw results that were still significantly depressed compared to the 2000-2007 pre-recession mega-construction era.
Indeed, there are those that are now trying to escape the market, with Dubai Group looking to sell its 45% stake in Lafarge Emirates Cement in September 2012.9 The company said that it needed to source additional capital to help support the business. Although the Dubai Group likely has more on its mind than just the cement industry in Fujairah, it is interesting that it is looking to exit one of the UAE's largest and most modern facilities. While some mega-projects continue, it is the postponement of the many smaller projects that have wiped out much of the UAE's cement demand. Given the surplus in its neighbouring countries, with the exception of Oman, producers in the UAE are facing a prolonged period of low demand, with low capacity utilisation and minimal, zero or negative margins. With much of its capacity under 15 years of age, it is not desirable for producers in the UAE to think in terms of capacity consolidation. However, the longer the global economic malaise continues, the more it looks like the construction boom (and not the current slump) was the exception.
Notes and references
Note: Websites accessed 22-26 October 2012.
1. CIA World Factbook website, 'United Arab Emirates,' https://www.cia.gov/library/publications/the-world-factbook/geos/ae.html.
2. World Bank Indicators website, 'GDP per capita (current US$),' http://data.worldbank.org/indicator/NY.GDP.PCAP.CD.
3. United States Geological Survey website, Various mineral industry reports for UAE, http://minerals.usgs.gov/minerals/pubs/country/africa.html.
4. 'Global Cement Directory 2012,' PRo Publications International Ltd., Epsom, UK, 2011; and work towards 'Global Cement Directory 2013.'
5. Back issues of 'Global Cement Magazine,' PRo Publications International Ltd., Epsom, UK, 2012; and UAE cement company websites.
6. De Moor, Y.; 'A trader's view,' within 'Global Cement Magazine,' October 2012, PRo Publications International Ltd., Epsom, UK, 2012.
7. World Bank indicators website, 'GDP growth (annual %),' http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG.
8. The National website, 'IMF raises UAE's growth outlook to 2.4%,' http://www.thenational.ae/business/economy/imf-raises-uaes-growth-outlook-to-2-4, 8 October 2012.
9. Global Cement website, 'Dubai Group looking to exit Lafarge Emirates Cement,' http://www.globalcement.com/news/item/1153-dubai-group-looking-to-exit-lafarge-emirates-cement, 19 September 2012.