In 2006, 14.4m tones of cement were consumed in the United Arab Emirates (UAE). The federation boasts one of the world's highest per-capita cement consumption, at roughly triple the world average, and the ongoing construction boom has, by all accounts, created a major shortage locally. Cement prices, as a consequence, have skyrocketed. At the end of 2006, prices increased by 100% over 2003. Prices rose from $73 per tonne at the beginning of 2007 to $81 per tonne in May. While this is causing much concern among building companies and contractors, forcing some to put projects on hold, deliver late, or hastily renegotiate contracts with customers and suppliers, it is doing wonders for the Northern Emirates' cement industry.
The combined production of all Northern Emirates producers accounted for 9.26m tonnes in 2004 - the most recent year for which such figures are available - over 80% of the UAE's total. The emirate of Ras Al Khaimah (RAK) is the largest producer, with 6.3m tonnes produced in 2004. Home to the country's three largest Portland cement producers (Union Cement, Gulf Cement, and RAK Cement), it also hosts the only white cement producer, RAK White Cement. The nearby Hajar mountains' abundant reserves of high-quality limestone have attracted cement producers ever since the UAE's first cement factory (Union Cement) was set up in 1975.
RAK should remain at the forefront of the industry as the Hajar range holds supplies of limestone which are nowhere near depletion, and its two largest rock quarrying companies (RAK Rock and Stevin Rock) are busy expanding their supply to cement manufacturers. Stevin Rock, which currently produces 32m tonnes per year (tpa) of limestone and gabbro, part of which goes to the cement industry, stated its wish to increase production to 40m tpa in the near future. It recently bought rock drilling rigs and other equipment to meet that target. RAK Rock, which supplies over 10m tpa of limestone for the cement industry, is also expanding its operations. At least four grinders are expected to be installed in the emirate.
Cement manufacturers in Ras Al Khaimah and elsewhere in the UAE are eager to expand their production. Union Cement, whose output currently stands at 1.3m tpa, is in the midst of a major capacity upgrade. A new clinker production line, with a capacity of 10,000 tonnes per day - reportedly the largest in the world - will be inaugurated on May 17th, allowing it to almost treble this cement output to almost 4.5m tpa.
Similar plans are in the pipeline elsewhere in the Northern Emirates. A plant is being installed in Fujairah, with a reported capacity of up to 3m tpa while a new factory is expected to be built in Sharjah, with a capacity of 3.6m tpa. All in all, according to estimates, the UAE's overall capacity could reach close to 20m tpa by the end of 2008, and up to 25m tpa at the end of 2009.
However, there are concerns that this massive capacity increase may be excessive and coming too late. According to some analysts, demand in the UAE could stabilise sooner than expected, as real estate developments in Dubai and Abu Dhabi reach completion. Producers might therefore quickly find themselves with a supply glut at hand, leading to drastic price corrections and lower margins.
Cement manufacturers are confident that real-estate and infrastructure developments in the Northern Emirates - where the real-estate sector is just starting to kick into gear - will boost indigenous demand, while continued growth in the Gulf Cooperation Council (GCC) countries - where virtually every city is unveiling grand construction plans - will provide a profitable export market. But many countries in the region as a whole are also scrambling to augment their own capacity. According to Global Investment House, the proposed capacity upgrades in the GCC would lead to a doubling of clinker - and, therefore, cement - production in the region as soon as 2008. This casts a shadow on UAE-based producers' confidence that the regional market can absorb their excessive production. And increased diesel and maritime insurance costs mean that exporting farther than the Gulf will pose a major challenge.
Finally, rising costs have been challenging manufacturers' bottom lines for some time. Energy prices - which account for up to 60% of the manufacturing price of cement - have increased, and insufficient access to natural gas has forced producers to rely on expensive alternatives, such as diesel and imported coal. Transport and labour costs have also risen. Until now, high prices commanded by cement on the local market have easily offset these costs. But a stabilised market - and a looming price-control intervention on the part of the authorities - mean that prices will not remain high forever.