UAE. Long-term prospects for the UAE cement industry are bright due to growth in investment in infrastructure in the UAE, GCC and key foreign markets, the latest study by Dubai Chamber of Commerce and Industry finds.
The UAE has the potential to become the major provider of cement to the Middle East and North Africa (MENA) region and beyond when taking into account the lucrative opportunities that exist.
The study, which is based on the Business Monitor International (BMI) UAE Infrastructure report for Q1 2012, finds that given the historic importance of construction projects in the UAE and the GCC, the cement industry has acquired increased prominence as an important industry with growing demand.
Furthermore, this is also an industry that can be expected to become more important in the future as demand for building materials increases in-line with plans for infrastructure spending in the UAE and the rest of the GCC region.
UAE Cement Industry overview
Table 1 provides data on the number of companies engaged in different activities related to cement production and trading in Dubai. A healthy trend is shown because while the number of companies engaged in cement manufacturing remains stable from 2008 to 2012, a significant increase is seen in the number of companies engaged in cement products trading and manufacturing of products using cement.
This information conforms with the data in Table 3 (see below), which shows UAE cement related exports growing from 2008 to 2010. Dubai’s position as a trading hub has helped the local cement industry grow to meet the construction needs of the GCC region and beyond.
Table 1. Cement and related companies registered with Dubai Chamber
Source: Dubai Chamber
Table 2 shows different trends in historical prices of various cement related construction materials in Dubai in 2011. For example, the price of white cement remained generally stable and then increased later in the year, while the prices of Portland cement fluctuated more during the same time. The recovery in prices in Q4 2011 could indicate market strength and could also help the profitability of the UAE cement industry, according to the study.
Table 2. Dubai Chamber Construction Material Price Index (CMPI)
Source: Dubai Chamber
Opportunities for the UAE Cement industry
Since cement is such a widely used and important material for construction of real estate and infrastructure projects, this industry has potentially lucrative prospects both within the UAE and also in export markets.
The potential growth of the domestic UAE market is highlighted in Figure 1. The value of the UAE construction industry is forecast to see substantial growth from 2012 onwards, partly due to investment in infrastructure projects. Some important projects include the key growth areas of logistics and tourism. Investment in these and other infrastructure projects in the UAE could generate demand for more cement, aiding the growth of the country’s cement industry.
Figure 1. UAE Construction industry forecasted output (US$ bn.)
Source: Business Monitor International (BMI) UAE Infrastructure Report Q1 2012, UAE National Bureau of Statistics. Data from 2012 onward is based on BMI forecasts. Output data measures value-added in the construction industry for the relevant year
Meanwhile, other growth drivers should be exploited given projections of long-term economic growth in regions such as the GCC, South Asia, Central Asia, East Asia, Africa and Turkey. These growing economies need construction materials to build vital infrastructure projects, like roads and bridges, to enable more economic growth.
While lower global demand may have impacted the global cement trade in 2009, causing a temporary decrease for some sub-product categories, UAE exports have shown strong growth between 2008 and 2010, according to the figures in Table 3.
It may also be noted that strong and consistent growth has been especially witnessed in Portland cement, which has grown every year from 2008 to 2010. The value of UAE exports in this sub-product category was more than US$ 133 million in 2010, which highlights its importance in UAE exports, the study finds. Growth is also seen in white Portland cement, hydraulic cement and cement clinkers from 2008 to 2010.
Table 3. UAE’s Cement sub-product exports (USD thousands)
Source: International Trade Centre (ITC), trademap.org.
The major markets for the UAE’s cement exports in 2010 were Oman, Saudi Arabia, Bahrain, Nigeria and Ghana. For the future, UAE cement exporters could note that according to figures from trademap.org, Iraq was the country that imported the most in terms of value of cements, Portland, and aluminous slag in 2010, representing a potentially large growth opportunity.
According to the same source, other potentially large importers of global cement in 2010 included African countries like Nigeria and Angola and MENA region countries like Algeria and Egypt.
Challenges for the UAE Cement industry
Demand for cement depends on the growth of the global construction industry and growth in this industry is underpinned to some extent by growth of the global economy. Therefore, any weakness in global economic growth could translate into weakness in global cement demand.
Other challenges are caused by competition by established players in foreign export markets. In the short to medium term, UAE companies could increase exports by finding gaps in demand and supply. While these gaps could emerge in any market, there could be more possibilities of such gaps developing in emerging markets in the MENA region, Africa and Central Asia.
Over the longer term, UAE cement companies could develop contacts and establish a stronger brand presence in major export markets in developing countries to further increase their sales.
Meanwhile, increased prices of raw materials and other inputs needed for cement production could create challenges for UAE cement companies. These challenges could be met by incorporating more efficient methods of production, more efficient financial and capital management, and a better and timelier service.
This could not only help UAE cement and cement product manufacturers to absorb raw material price increases, but also in the longer run it will enable them to be more competitive and lower cost cement producers.
In conclusion, the study finds that the need to build more real-estate and infrastructure in the UAE is expected to drive future demand for cement, while the growth in demand for construction materials from developing countries that presents lucrative export opportunities.
This could especially be the case for emerging markets in Africa, Central Asia and the MENA region, in which supply and demand gaps may be created as long-term economic growth causes increased cement demand.
The study recommends that UAE cement businesses develop contacts in these markets in order to fully realise this potential and grow their exports. Meanwhile, they ought to actively continue to enhance their competitive advantage in this industry by creating a brand presence in foreign markets, by differentiating their products, reducing production costs and improving efficiency.
This, the study concludes, could help propel the UAE cement industry to be the major provider of cement to the MENA region and beyond.