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RELATED ARTICLES: Oman Cement Company sales and profits dip | Sharjah C&ID, Arkan, RAK Co a mixed bag for cement | Gas squeeze adds pressure to UAE materials firms
Oman Cement Company has been given OMR7.34 million from the government to cover its losses following the spike in cement and clinker import costs over 2008 and 2009.
The Muscat-based company announced the bail-out from the Ministry of Finance yesterday to the Oman Securities Market.
The state-owned company has seen a significant dip in profits and sales as higher production costs and a reduction in order size has squeezed margins. Its net income rose OMR7.1 million (AED67.73 million, US $18.4 million) for the first three months of 2010 against the end of 2009, although this resulted in a 2.8% reduction in net profits.
Cement produced during the first quarter increased to 495.1 kilotons from 474.8 kilotons during the corresponding period of last year. During this period, it increased its clinker imports to over 179.8 kilotons and profits have suffered as a result of the government directive to sell at a low price.
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The company drop in sales volume from 580,000 tons to 490,000 tons, according to Global Investment House in Kuwait. Average cement prices remained slightly higher at RO31.33 per ton since the beginning of the year.
Analysts had nevertheless kept faith with the company, with EFG Hermes in Dubai giving the stock a ‘buy’ recommendation during April and May respectively.
Nishit Lakhotia, an analyst at Securities & Investment Company in Muscat, points out that the money the company received for 2008 and 2009 was compensation from when demand was high and the government mandated companies to import clinker to meet the demand. "If you are forced to import clinker during that time then the government will pay you for that, and that is what has happened."
He compared it to the compensation to Industries Qatar from the Qatari government, which, during high domestic demand, encouraged the company to import at a higher price and sell into its home market at a fixed price. He gave an 'add' recommendation to Oman Cement Company on 27th April.
Oman Cement Company is one of many cement and related materials manufacturers to suffer from current market conditions.
Sharjah Cement & Industrial Development saw more than AED100 million wiped off its first quarter 2010 profits compared to the same period the previous year, from AED297.5 million to AED173 million, according to its financial statement.
Dubai-listed Arkan Materials saw revenues fall by a similar amount, to AED66.5 million from AED166 million for the first three months of 2009, with net profits declining from AED91 million down to AED19 million.
Oversupply in both UAE and Oman has seen firms from the two countries selling where they can into each other's markets, analysts add.
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Hats Off to the great leadership of this country. It's an excellent move to boost the economic of the country and also t