(MENAFN - Arab News) Profits of the cement sector in the Gulf Cooperation Council (GCC) countries increased by 27.1 percent on a year-on-year basis during the first half of the current year, from 764 million in H1, 2011 to 971.5 million in H1, 2012, a report by the Kuwait-based Global Investment House (GLOBAL) said.
According to the report, the GCC cement sector grew by over 17 percent in the six months of 2012, mainly due to the significant growth of Saudi Arabia by over 20 percent. Oman stood second and reported a growth of 13.8 percent, while Qatar and the UAE reported roughly the same growth of 11.5 percent.
Saudi Arabia, with its huge pipeline of projects, is able to generate a significant demand of cement, which is helping the local and regional companies to post better numbers than last year. However, talking about Q2, 2012 alone, the performance was poor compared to the first quarter of 2012 with the companies reporting a fall of 15.7 percent.
Cement companies in the United Arab Emirates registered the highest income growth, reporting an increase of 175 percent. Net profit of the GCC during Q2, 2012 remained 15.8 percent less on a quarterly basis while it was up by 4.8 percent on a yearly basis, the report said.
Saudi Arabia witnessed an increase of 21 percent in the sales thanks to a 12.6 percent increase in cement demand and an improvement in cement prices by over 3 percent. The sector margins, however, dropped slightly when compared with Q1, 2012 to 54.5 percent, the reason for which would be the influx of cement from regional countries, according to the report.
Country-wise, the UAE and Oman, which used to report declining sales revenue, reported higher revenues due to the better operating environment in both countries. UAE growth increased, an indication that the sector has touched its bottom and is now poised to rebound.
UAE sales revenue increased 11.6 percent to reach 518 million, bringing the gross margin back to a double digit of 11.8 percent, higher than the gross margins reported in Q1, 2012. In addition, net profit margins, which used to average around 5.4 percent since H1, 2010, increased further from 8.4 percent in Q1, 2012 to 10.3 percent in H1, 2012.
In Oman, cement companies witnessed a 13.8 percent increase in sales revenue, reaching 201.7 million in H1, 2012. The companies did well when compared to the previous period due to the increase in cement demand and the diversion of UAE exports to other markets, the report said. The costs, on the other hand, rose more than the increase in growth, which dropped the gross margins of the sector to 34.3 percent in H1, 2012 compared to 38.2 percent earlier. The sector's net profits increased by 52.2 percent to reach 58.9 million, bringing net margins back into the 30-40 percent range, previously being in the 20-30 range.
Qatar also witnessed increasing sales revenue, posting an 11.9 percent increase in sales revenues and a 17.4 percent increase in net profits. However, on a quarterly basis, both revenue and net profit declined by 1.3 percent and 9.7 percent, respectively, according to the report.
Overall, GCC companies have witnessed better demand in 2012 compared to 2011. However, due to the slow pace of allotting new contracts and comparably a lower project activity, most of the countries witnessed a drop in revenue and income during the second quarter of 2012 compared to Q1, 2012. The report expects GCC companies to do well in 2012, as the demand is relatively higher and the prices have rebounded in most of the countries.
GCC cement prices
Meanwhile, cement prices in the GCC averaged 65.8/ton in H1, 2012 compared to 65.9 a ton in Q1,2011, a 0.1 percent decrease due to the price cap in Saudi Arabia and the slow in demand in Kuwait and the UAE, the report said.
All cement prices in the GCC witnessed an increase, except Kuwait and Oman. Kuwait marked the largest decline of prices by 4.9 percent to reach 75.8/ton in H1, 2012 as compared to 79.7 a ton during the same period a year ago. Kuwait continued to sell the highest average of cement prices as compared to other GCC countries.
Cement prices in Oman, which had stabilized the last quarter, marked another half of decline. H1, 2012 prices reached 64.3/ton as compared to 65.3/ton in H1, 2011, a single-digit decline of 1.5 percent. Omani companies are still pressured from domestic competition, as more pressure arises from neighboring UAE cement companies, which supply the market at low prices, thus hurting margins of Omani companies and igniting price wars among them.
UAE realization prices increased 2.2 percent from 50.4/ton in H1, 2011 to 51.5 a ton in H1, 2012 and increased 5.1 percent from the end of 2011, as demand picked up in the UAE, especially from the Dubai region. Qatar cement prices increased to 70.1 a ton in H1, 2012. Additionally, the government continues to cap cement prices at 68.7 a ton, the report said.
In Saudi Arabia, the largest cement producer in the GCC countries, cement prices increased by 3.3 percent in H1, 2012 to reach 67.7 a ton, the highest average realization price since 2003. The reason Saudi Arabia is recording high cement prices is the ample demand arising in the Kingdom due to its SR 610 billion development plan, the report said.