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DUBAI — The UAE currently faces a shortage in the cement production industry by about 5 million tonnes per year, forcing it to import cement to facilitate  Join our daily free Newsletter

MENAFN - Khaleej Times - 14/07/2005

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DUBAI — The UAE currently faces a shortage in the cement production industry by about 5 million tonnes per year, forcing it to import cement to facilitate the needs of the construction industry, according to a recent report by the Middle East Economic Digest (MEED).

Rising oil prices have coaxed the regional boom to new bounds with multi-billion dollar real estate projects and investments arising in Dubai and Abu Dhabi while the other emirates lay down plans to follow suit in the real estate sector. The local cement industry has never been stronger, currently there are six cement producers listed on the UAE financial markets and in the near future they will be joined by the Emirates Cement Company, based in Al-Ain. With construction currently roaring, cement producers are unable to keep up with demand as stockpiles decrease faster than the rate of production.

Back in November 2004, to remedy the situation before cement prices raged out of control, a decision by Dubai Crown Prince and UAE Defence Minister Gen. Shaikh Mohammed bin Rashid Al Maktoum was announced allowing cement suppliers to use facilities and docking berths at Jebel Ali without paying duty.

"We are encouraging cement importation to the UAE, because the market price at present is high and, as with all fair trade markets, we do not want to enforce price restrictions," said Sultan bin Sulayem, Executive Chairman of Dubai Ports Authority (DPA) and Chairman of Nakheel at the Press conference concerning Gen. Shaikh Mohammed's decision.

"In the current climate it is economical for us to import cement so as to not delay development of projects or increase costs," he added.

"The UAE is one of the only countries in the region that needs to import from surrounding countries, but within five years even they will begin to face a surplus," Ahmed Al Rousan, Secretary General of the Arab Union of Cement and Building Materials, told MEED.

Annual demand for cement in the UAE is increasing at an astonishing rate of 15 per cent, according to HSBC. Currently the cement production capacity of the UAE for portland cement is about 11 million tonnes a

year while demand is estimated at about 16 million tonnes per year, according to the Union Cement Company.

However, cement producers are not standing idly by, they have begun upgrading and expanding production facilities and constructing new ones to compensate for the shortage of supply. By 2007, local is estimated to be about 18 million tonnes per year. This will allow local production to cover necessary demand until an expected second construction cycle takes place in 2008.

"Capacity expansion in the UAE is less steep than in Saudi Arabia and project growth is higher, so the UAE is in a situation where it can compensate," said Raghu Sarma, a financial analyst with Global Investment House, Kuwait.

According to analysts, at the current rate of expansion and production, the region, including Iran, will have a production capacity surplus of about 104 million tonnes per year. Exporting is not a viable option for local cement producers due to high operating and logistics costs, especially with Iran having an expected surplus of more than 20 million tonnes per year by 2008 and occupying a strategic location for export purposes.

However, Al Rousan believes that, "The UAE is an exceptional case. If you see what's happened in terms of projects for the next 10 years and what has yet to be unveiled, I would say it will need the extra capacity. The UAE is still importing, which makes it stand out from the rest of the region."

Sarma shares similar sentiments in that the construction sector in the UAE is unlike others. "The UAE construction market differs from its neighbors, because the real estate and leisure projects are largely aimed at foreigners and attract a great deal of private sector participation. It is showing a low project risk and low credit risk and, as the oil dependency is lower and diversification greater, it has the potential to avoid a glut."

He also believes that the export potential in times of surplus will be increased due to the UAE's fast paced development of logistical infrastructure as well as its strategic location.

Owner of the Jebel Ali Cement Works, Sharaffadin Sharaf, agrees with Sarma's sentiments. "I see growth in the next 10 years with projects in the pipeline, not just in the UAE, but in Saudi Arabia and Iraq. We'll have great demand. I would say demand for our mill will be there. I'm not worried." Jebel Ali Cement Works is seeing a 193 million (Dh 708.31 million) relocation and expansion project.

The vision of a promising cement market is not shared by everyone. Deepak Menon, sales manager at Ras Al-Khaimah White Cement Company, says despite acknowledging, that their may be another construction cycle in 2008, he urges caution and restraint and questions the need for the overflow of new cement projects and expansions. With surplus production in sight, he said, "I am extremely worried. I would like to know where we plan to export all of this. I can't see it."


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