Oman Cement Company sales and profits dip

Competition heats up despite welcome fall in clinker import price

Oman is expected to see more competition among cement suppliers
Oman is expected to see more competition among cement suppliers

Oman Cement Company reflected the twin changes of prices and buying volume for cement after a rise in its net income against the previous quarter, according to results.

The Muscat-based company’s net income rose RO 7.1 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.

Gross margins gained 19.2% to 45.1% at the end of this year’s first quarter as compared to 25.8% for the same time period in 2009.

A fall in procurement price of imported clinker- the solid material produced by the cement kiln stage that forms lumps and is ground to form cement - was cited as the cause of the year-on-year gains, with the decline in sales volumes accountable for the quarter-by-quarter slip.

Cement produced during this first quarter increased to 495.1 kilotons from 474.8 kilotons during the corresponding period of last year. Company procured clinker was less hence it had to resort to clinker imports of over 179.8 kilotons of clinker.

Falls in sales revenues were a direct result of 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.

The company is currently upgrading a packaging plant is in progress, expected to be completed by the end of the second quarter. OCOI 2nd expansion project of 4,000tpd is expected to come online this summer 2010 which would raise the cement production capacity of the Company to 2.6 megatons per annum from 1.87 megatons currently. The commercial production from the new project would start from the third quarter.Global research expects OCC to report full year net profit of RO 27.2 million in 2010.

Hettish Kumar, senior financial analyst at Global Investment House, told CW that OCC has benefitted from producing its own clinker, as opposed to rivals that import. However, as projects in the UAE slow, cement companies in the Emirates will look to increase exports to Oman, intensifying competition.

“As we see the demand from the UAE going down, the price of clinker has dropped. The UAE is exporting what it can, although prices between the two countries are very similar.”

The drop in sales is an echo of Raysut Cement, the Sultanate’s biggest cement manufacturer, which last week posted a 32% decline in sales for the first quarter and a fall in revenues to RO 16.3 million from RO23.9 million in for the same period last year. At the same time the company saw a rise in the cement produced.

Competition from imports was cited as the chief cause, which also saw profits before tax fall by over a million.

"The decline in profit may be attributable mainly to competition from the external market since the second half of the previous year and demand recession in the export markets creating pressure on sales volume and pricing.

"Cost reductions are on the positive side reducing the impact, however. In consequence, average profit per tonne has improved," Mohammed bin Alawi Ali Muqaibal, company chairman, said in the Directors' Report.

Both companies, however, have seen significant gains in their share prices over the last year, with peaks of RO0.79 for OCC and RO1.923 for Raysut around August and September last year.

The struggle for the Omani companies is at odds to their Saudi counterparts, which have seen an overall rise in sales as a latent effect on the Kingdom’s decision to ban cement exports last year.

Kumar is positive on the outlook for Omani materials manufacturers if current expectations of a 94% completion of projects in the country can be sustained.

“The projects have a combined value of RO104.6 billion, of which RO6.5 billion are on hold or delayed,” he said. “I think that if the rest of the projects can go ahead it looks good for companies that produce cement or steel.”

He earmarked the as-yet unlisted Al Madinah company as a future player in the country. It will begin production in 2011 with a start-up capacity of 800,000 mega tons.
 

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