Ducab's Reel World

Gerhard Hope , April 6th, 2009

Andrew Shaw, MD of cable-maker Ducab, speaks to MEP Middle East about the company's latest results, the effect of the economic downturn on the cable market, and the impact of the fluctuating copper price.

Shaw reveals that Ducab recorded a 35% growth in turnover for the 2008 financial year – from AED2.4 billion in 2007 to AED3.3 billion in 2008. “We did about 80 000 copper tons last year. This translates into roughly double the number of cable tons, as copper comprises about half the weight,” he explains. This figure for 2008 is up from 65 000 copper tons produced in 2007.

“Not only was it a record year in terms of the numbers, but it was also a year of strong growth and expansion. We expanded our factory capacity in Mussafah, purchased an additional factory there, and also opened the copper-rod plant in Abu Dhabi. So it was on the back of this expansion that we were able to boost our manufacturing volume, an increase that really came in the second half of last year,” comments Shaw.

Growth

He adds that the latest figures represent a bigger growth in the total volume produced, as opposed to turnover growth driven by the copper price. “Copper accounts for about 55% of our inputs,” reveals Shaw. “We have to pass the copper price fluctuation onto our customers, as it is such a huge component.”

The copper price remained fairly stable until the fourth quarter of 2008, when it “pretty much halved in a period of six weeks,” says Shaw. It hit a peak in May 2008 of over $8 000, and then fell to between $3 000 and $3 500 towards the end of the year. “While the copper price definitely affects our sales values, last year it was relatively stable compared to 2007.”

Recently the copper price broke out of its ranged trading band, peaking at $3 700, but it has since stabilised to its previous level. “No one really knows where the copper price will go next. With bad economic data from everywhere, the global demand for copper is falling, so there is speculation the price will remain at its current level.” Shaw adds that Ducab hedges against the copper price in consultation with its key customers, as it cannot afford ‘speculative exposure’.



Turnover

Shaw explains that the UAE remains Ducab’s largest market, accounting for three-quarters of its turnover last year. “Our growth in the UAE was very strong last year. However, this was paralleled by growth in the rest of the region. We are very focused on growing our market share outside the UAE as well. We already have joint venture companies in Bahrain and Qatar, and have opened a new sales office in Saudi Arabia. Going forward, we certainly foresee the potential for future growth lying outside the UAE.”

Commenting on prevailing market conditions, Shaw points out that there is still a lot of construction activity in Dubai. “So while our volumes are down on last year, we are still shipping cable. Plus you have to bear in mind that our volumes last year were exceptionally high. In fact, our volumes at present are running at about 2007 levels – which, I think, is not bad compared to many other businesses.”

Part of the reason why the economic downturn has had such a decimating affect on the entire construction supply chain is that Ducab, in common with every major contractor and consultant, had been geared for continued growth. “Thus when the growth ended abruptly, it meant an adjustment in terms of everything, from people to raw materials, orders and lead times. However, I think we are now coming to the end of that adjustment period,” comments Shaw.

Stabilisation

“We are now beginning to see some stabilisation. Customers now have a much better idea of what projects are carrying on, and which ones have been suspended or cancelled. I think it has been particularly difficult for our customers, particularly in real estate, as they have not known which projects would continue, and where to place their resources. Now they are beginning to comprehend what sort of workload they have left, so the sense of uncertainty is beginning to lift. This means they are now able to devote their full attention to those projects that are going full steam ahead,” says Shaw.

This has presented Ducab with several opportunities in an otherwise lackluster market at present. “We now have more capacity to be able to push product into the region. There is now almost a breathing space for us to focus on internal processes and efficiencies, which we have not had the chance to focus on until now. There is now also more line time available for R&D into new products,” says Shaw.

These new opportunities also present their own unique challenges. “The prevailing level of uncertainty means we have had to come up with much shorter lead times. When customers need product in this market, they need it quickly, because no one wants their cash tied up. We remain confident that we can respond to these new challenges,” asserts Shaw. Another challenge is increased competition.

Synchronised

“As the whole economic crash has been so synchronised almost across the entire world, cable makers in Europe, Asia and India are now faced with local markets that are much less buoyant they were before. Relative to those home markets, the Middle East is still a growth market, meaning there is now a lot more competitor interest in the GCC. There are a lot more imports, and a lot more people wanting to bring cable in,” explains Shaw.

This raises the spectre of sub-quality products entering the region. “It is not surprising that, with the prevailing economic situation, there is now renewed pressure on costs. The spectre of even fake-quality product has always been there – in the peak, it was due to a shortage of supply, and now with the relative downturn, it is due to the perceived need to cut costs,” comments Shaw. There is equal pressure on consultants and specifiers, he adds, who need to maintain the correct specifications so as to ensure proper healthy and safety standards across the board.



“For example, the Dubai Metro stations are using a lot of fire-resistant cable. Yes, it is more expensive, but it is about safety. A lot of high-rise buildings have also been moving to low smoke and fume cables, which increases the survivability factor in case of a fire, as the smoke is less dense and poisonous. There could be a temptation to move away from those cables. Electrically it is still fine, but it does not give the same safety factor. I think this is an area where we will have to work quite hard with specifiers to ensure that safety-critical aspects are not compromised due to the intense pressure on costs,” argues Shaw.

Looking to the immediate future, Shaw says Ducab has been at pains to position itself as a total solutions provider. “We pride ourselves on being able to do everything, from assisting with system design for customers who want advice on what cable sizes and accessories to use, to how to install it. We are involved with projects right from the very beginning, when they are still on paper, all the way through to jointer training. In this sort of market, where everyone is feeling the pressure, we believe that being able to turn to a trusted, one-stop provider is something the market values,” concludes Shaw.

Al Raha

Ducab has signed a Strategic Manufacturer Agreement (SMA) to supply LV wires and power cables for the Al Raha Beach project. As per the agreement, estimated at about AED800 million worth of cables, Ducab will supply developer Alor with LV wires and power cables valued at AED100 million a year.
 
Al Raha comprises 11 precincts, and will require nearly 70 km of 22 kV cables. Covering over 570 hectares of land, this mixed-use development will be the new gateway to Abu Dhabi. Completion is scheduled for 2015.

The project includes an 11-km-long coastline development that will house iconic buildings such as the Abu Dhabi World Trade Centre, Aldar’s new headquarters, luxury waterfront villas and hotel and apartment properties.