Cement companies in the GCC could face huge losses as rising fuel and energy costs hit suppliers' bottom lines, analysts say.
A report issued this week also revealed the GCC cement sector profitability continues to decline despite an 8.8 per cent increase in profits in the second quarter of 2011.
Profitability in the sector fell 4.7 per cent year on year to $785.9 million (Dh2.88 billion) in the first half of the year, a positive change from last year's 12 per cent year on year decrease.
Cement prices are also down in the region, with a 3.8 per cent decline to $66 per tonne in the first half of this year from $68.6 per tonne in the same period last year, according to the GCC Cement Sector Quarterly.
The report notes demand for cement is especially weak in the UAE despite a sharp rise in cement prices in Abu Dhabi last month.Rising energy and fuel costs are behind the price increase, according to Vishnu Sankaran, the industry manager for chemicals and materials practice at Frost and Sullivan. With projects nearing completion in the UAE, demand for cement has fallen, with supply far outweighing demand, he said.
"Cement manufacturers may experience huge losses unless a price ceiling is agreed upon," said Sankaran. They may not be able to pass on price increases for projects that are nearing completion, but "they are most certainly expected to pass on the price rises in newer projects," the majority of which are in Abu Dhabi, he added.
The report predicts a negative outlook for the industry over the next few years. Rizwan Sajan, chairman of Danube Building Materials, agrees. "The cement industry is one of the toughest industries to be in [and will continue to be so] in the near future, he said
Saudi Arabia is the only driver of cement profitability in the region, the report says, with profits increasing 13.5 per cent year on year in the first half of 2011. Along with Qatar, it is also the only country not to record a decrease in cement prices. Oman registered the greatest price decline, at 14.4 per cent.
From / Gulf News