Cement capacity in the GCC is expected to reach 120.7 million tonnes per annum by 2013, a 13 per cent increase from 2011. While cement demand is expected to reach 88 million tonnes in 2013 up 6.6 per cent from 82.5 million tonnes in 2011 and 78.3 million tonnes in 2010.

Gulf Investment House said that capacity increase is driven mainly by Saudi Arabia where it is expected to reach 58 million tonnes while demand is expected to be at par with the capacity increase and is expected to increase by 8.3 per cent during the period 2011 to 2013.

UAE is expected to witness an increase in the oversupply with capacity touching 43mtpa by 2013 and demand expected to remain in the range of 18 million tonnes per annum to 20 million tonnes per annum. We expect cement over supply to continue till 2013.

However, the over-supply situation in the GCC is likely to shrink on the back of huge spending plans announced by Saudi Arabia, Qatar and Kuwait. The security issues have improved in Afghanistan and Iraq which is seconded by exit of international allied forces.

Saudi Arabia, rolled out the new national Budget plan for 2012 with expenditures of SAR 690 billion. Expenditure will focus on education, healthcare, water and sewage services and transportation. These new initiatives along with earlier plans would definitely scale the demand of cement higher in the country.

Following years of massive infrastructure development and a combination of plentiful supplies of raw material and cheap feedstock the cement sector benefited immensely and banked upon various expansionary initiatives. Ironically, most of these expansions came online at a time when the region possibly faces the worst economic slowdown in many decades.

Companies in GCC are likely to focus on cost saving measures such as installation of in house power plants to compensate for the decline in volume sales and realization prices and increase in transportation and freight costs. In addition, various companies have banked on horizontal and vertical integration. Some of them have ventured into concrete block business while others have got stake in lime stone quarries, shipping companies, power plants, cement baggaging plants and port terminals.

Key risks to the sector arise from delay in the execution of the big ticket government development plans particularly in Kuwait. Another major factor would be the imposition of trade bans. Saudi Arabia has imposed a cement export ban which has adversely affected the revenues of various companies. Any similar move elsewhere would generate the same impact.

 

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