Cement supply to top demand
Oversupply could lead to plummeting profits among cement producers, say industry experts.
The supply of cement in the Middle East is expected to far outstrip demand over the next few years, leading to a plummet in profits among cement producers, according to industry experts.
"Cement demand is predicted to grow at an average rate of 10-15% over 2008 into 2009 and could reach 17 million tonnes, but demand will be less than production capacity," said Ibrahim Al Shehi, director, UAE Ministry of Public Works.
"By 2009 there could be surplus cement production capacity of 33 million tonnes. There will be a decline in profit for cement producers," he added.
The GCC's largest cement producer, Saudi Arabia, is expected to produce up to 20 million tonnes by 2010, according to Saud Islam, CEO, Yanbu Cement Company.
"The rate of growth in cement demand is decelerating in Saudi Arabia," he said. "There will be a 66% increase in capacity this year. In order for the market to absorb this, domestic demand must grow by around 15%, but this is unlikely as the projected growth is around 7%."
Islam added that the challenge for the kingdom will be finding export markets ready to take the surplus after 2010. "Anyway you look at it there will be a huge capacity surplus of at least 10 million tonnes, possibly double."
Richard Ferraud, managing director, Quadra Trading, said that cement producers in the region will face challenges as they lack adequate ports and infrastructure, international standards and competition from Asian exporters.
"Local players target domestic markets so they aren't geared up to export large quantities of cement to international destinations," he said.
"Firstly, there's the lack of infrastructure - the ports are not prepared for this. Because plants are mainly inland, you need facilities for storage, which producers don't have. They will also need to comply with international norms in order to export to European or American markets."