Saudi Arabia remains the only driver of GCC cement sector profitability with the net profit increasing by 13.5 percent year-on-year in H1 2011, Global Investment House (GIH) said in a research note. The other member countries were expected to continue an erosion in their profitability, it added. Cement prices in all the GCC countries witnessed a decrease except in Saudi Arabia and Qatar. Oman marked the largest decline in prices by 14.4 percent amid weak demand and the stiff competition in the local cement market. “Within GCC, we are positive on Saudi Arabian cement sector due to better demand supply situation as compared to other countries in GCC. Global Research outlook is Neutral for Qatar and Oman, and negative for UAE,” the report noted. However, the pace of decline in the GCC's cement sector profitability appeared to be slowing down with the consolidated cement sector profitability declining by 4.7 percent year-on-year to $785.9 million in H1 2011 compared to a decline of 12 percent year-on-year in H1 2010, GIH report said. Cement prices in the GCC averaged around $66 per ton in H1 2011, as compared to $68.6 per ton in H1 2010, a 3.8 per cent decline due to demand weakness in the GCC, especially from the UAE. “Companies in Oman and UAE are witnessing a huge decline in their gross margins due to increasing competition and increasing raw material prices. However, with decline in oil prices, we expect the Q3 2011 to benefit companies and expect them to report better margins,” the report said. The outlook for the UAE's cement sector remains negative even as it is seen improving in the rest of the GCC, the report said, noting that high input prices, lack of export opportunities within the region and a slowdown in local consumption of cement has led to an oversupply, squeezing margins of cement manufacturers in UAE. Cement price in the UAE further went down by 5.1 per cent to $50.4 (AED185) per ton in the first half of 2011 as compared to an average price of $53.1 (AED195) per ton in H1 2010, the Global report said. The price was a high $86 (AED316) per ton in H1 2009, and the current prices are down more than 41 per cent since then. Consolidated net profits of listed cement companies in the UAE declined by 56.1 percent to $19.4 million in H1 2011 as compared to $44.2 million during H1 2010, the report added. UAE cement sector's consolidated revenues went down by 2.9 percent on a year-on-year basis to $464.2 million while Q2 2011 revenue was also down quarter-on-quarter by 6.3 percent to $224.5 million. “Reason for the decline in the revenue was because of low demand in the country along with lesser export opportunities regionally as other countries are also reaching self-sufficiency levels,” Faisal Hassan, Global's Head of Research said. “Gross margins of the sector continued to deteriorate and reached historic lows of 7.1 percent in H1 2011,” he said. “The sector was operationally in losses of $6.9 million; however, contribution from non-core income portion added handsomely to the bottom-line. The contribution touched 123.6 percent during H1 2011 as compared to 71.5 percent in H1 2010,” the report noted.
