The cement producers in Oman anticipate an overall seven per cent growth in demand and better price realisation this year, thanks to an upward revision in prices by neighbouring UAE producers and a surge in demand from contractors building infrastructure projects.
The prospects of better price realisation have aided a surge in stocks of both cement producers — Oman Cement Company and Raysut Cement Company — on the Muscat Securities Market yesterday. Oman Cement shares soared almost six per cent to 484 baisas on demand for more than a million shares, while Raysut Cement was up 2.21 per cent to touch 833 baisas amid demand for 140,097 shares.
An important factor that is going to aid a surge in demand and better realisation is the price revision by UAE producers in December last year. Oman cement makers have been complaining of dumping by UAE cement makers, eating into the net margins of the former.
“The UAE players have already incorporated a price revision of about 20-25 dirhams in December, 2011. Most of these firms were incurring losses and they can not sell it at a lower price. The industry cartel in the UAE is also planning to go for further increase in the cement prices in the coming quarters,” said Kanaga Sundar, senior research analyst at Gulf Baader Capital Markets.
With this revision, the UAE producers are selling bulk cement in Muscat at RO23-25 per tonne and around RO22-23 a tonne in Sohar, which include a transportation cost of RO2-2.5 per tonne. This is against RO20-21 per tonne earlier. “This may favour the local manufacturers in regaining the lost market share in the Omani market. The price realisation will also increase this year.”
The UAE demand is slowly picking up, with an improvement in construction activity, said Suresh Kumar, Head of Research at Al Maha Financial Services.
A recent note said that 2012 will see $15.068 billion worth of contracts awarded in the UAE – an increase of 26.57 per cent from last year. The total value of current UAE construction projects is $1.249 trillion with buildings accounting for $871.6 billion.
It appears that with the narrowing down of price difference between local and UAE producers, local contractors will prefer Omani firms for their cement requirements due to logistics reasons.
Oman Cement has got some long-term contracts with the contractors working on the major government projects, which includes Duqm industrial hub, seaport, airports, and Sohar industrial zone.
Oman Cement said the company’s daily average sales volume has considerably increased during the last three months. “Currently, the company has been able to sell about 7,000 tonnes of cement on a daily basis.” Oman Cement in a recent investors’ meet said the company has budgeted average cement sales of 6,800 tonnes per day this year, which is against a daily sales of 5,900 tonnes in 2011.
As far as investor returns are concerned, Raysut Cement has brought down its dividend to 50 per cent for 2011, from 100 per cent paid in the last four years. The company’s net earnings were affected and therefore, it is unable to pay 100 per cent dividend like in the previous years. Oman Cement board has recommended a 30 per cent dividend. While Raysut’s dividend payout per cent works out to 66 per cent, Oman Cement’s payout is higher at 77 per cent, noted Suresh Kumar.
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