OMAN: Raysut Cement’s profit drops again

Raysut Cement, Oman’s biggest cement producer, yesterday announced a 47 per cent fall in profit before tax at RO10.17 million for the first nine months of 2011, against RO19.03 million posted for the same period last year. 

However, the profit before tax in the previous year included the price subsidy of RO1.59 million received from the government for cement import, the company said in a statement posted on MSM website. 

The decline in profit is attributable mainly to severe competitions faced by the company both in the domestic and the export markets impacting both volume and the price, which have started from the previous year. “The fall in the market value of investment also has added to the pressure.” 

Pioneer Cement for the nine-month period earned a profit of RO1.49 million in spite of the severe competitions faced by the company in the UAE market. 

Raysea Navigation, Raysut’s subsidiary that provides with shipping services, has started commercial operation during the year and has earned profit of RO470,000 during the period of nine months. 

The group has earned revenue of RO62.67 million and the profit before tax of RO11.71 million. In spite of the severe price competition from the UAE suppliers, and the volatility in the export market, Raysut Cement has achieved the sales revenue of RO44.25 million during the period of nine months ending September 2011 against RO49.88 million achieved during the corresponding period in the previous year, a decline of 11 per cent. 

The substantial developmental plan has been mooted or under execution in the central region of Oman with the facilities of modern port. It is expected that the economy in Oman would grow by 5 per cent at current prices. 

The above developmental initiatives have led to larger demand in the infrastructure industry including cement. “However, the dumping of cement from UAE suppliers continues impacting the cement industry in Oman severely. With the larger growth in the region in the coming years, the situation is expected to improve though gradually.” 

This has led the company to explore new avenues for growth in the export front and newer markets, the company’s initiative to further explore the potentials in the export market, alongside meeting the growing demands in the domestic front would place the company in a distinctly advantageous situation in the coming months and years. 

The group as a whole has produced 2,533,512 tonnes of clinker and 233,214,1 tonnes of cement during the period ended September, 2011. During the period of nine months, 1,598,942 tonnes of clinker were produced in the Salalah plant of RCC, against 1,613,317 tonnes produced in the same period of 2010. It produced 1,362,628 tonnes of cement in its Salalah plant, against 1,537,913 tonnes produced for the same period last year. 

The company has sold 1,538,901 tonnes of cement and 329,278 tonnes of clinker during the period against 1,556,788 tonnes of cement and 319,370 tonnes of clinker in the corresponding period in the previous year, registering a decline of about 1 per cent on cement and an increase of 3 per cent in sale of clinker.

INDIA: Dalmia in talks to acquire new cement plants

Cement maker Dalmia Bharat Enterprises is in talks to acquire newly built cement plants to expand in a market where some new entrants, facing subdued demand and rising costs, are seeking exit, its managing director said on Monday.

"Our firm view is that time to invest is when there is pessimism and recession. That's not the time to run away. That's the time to have conviction and courage," Puneet Dalmia told Reuters in an interview.

Dalmia said the company is betting on the long-term prospects for the sector and its partner private equity firm KKR, which holds 15 percent stake in its cement unit, shares its views on acquisition.

"KKR is fully behind us and they have said for the right transaction, a lot of capital is available. So the capital firepower is not a problem. I think the question is can we get a return on the capital," Dalmia said.

The company also plans to utilise its cash reserve of about 2.5 billion rupees for the acquisition.

Acquisitions help consolidate the market and carry less risk compared with greenfield projects, Dalmia said, without giving details on the size or timeframe for acquisition.

It prefers a company based in south and eastern India, where its current plants are, but is also looking at other regions. About 10-20 million tonnes of cement capacity is available for acquisition, he said.

India's cement industry is facing a demand crunch as a rising interest rate, sluggish policy decisions and global uncertainties have slowed the infrastructure and real estate sectors, the key consumers of cement.

New plants have further pressured capacity utilisation and cement prices across the country, forcing some new entrants, who set out to build plants driven by demand optimism and cheap credit available in 2007-08, to seek exit, Dalmia said.

The sellers are now getting more realistic about price expectation, boosting chances for a deal, Dalmia said.

Dalmia Bharat Enterprises operates 13 million tonne cement plants at present. Its plans to add 5 million tonnes of capacity has slowed down as demand is sluggish and it looks to acquire new capacity.

It plans to commision one plant of 2.5 million tonnes in 2 years, but would take longer to complete the other plant.

Last December, it had said it will set up two plants of 2.5 million tonnes each in two-and-a-half years.

Dalmia doesn't see demand for cement reviving in the next 12-18 months and expects prices to remain stable for the next 3-6 months.

"In short term, there are headwinds and there is demand contraction in states which lack political leadership," Dalmia said, adding that overall cement demand was growing at about 3-4 percent, much lower than the industry's expectation of 10-12 percent.

A stubbornly high inflation and rising interest cost are further denting the company's margins, Dalmia said. The cement maker has a current capacity utilisation of 60-65 percent.

At 02.28 p.m., shares in Dalmia Bharat, valued at $180 million, were trading 1 percent lower at 107.95 rupees in a weak Mumbai market.

INDIA: Builders want govt to rein in cement producers

India is the world's second largest producer (224.4 million tonnes per annum ) of cement , after China , in the world. Tamil Nadu is the third largest cement producing state , after Andhra Pradesh and Rajasthan , in the country. But ironically, cement prices in Tamil Nadu are among the highest in the world.

The reason : Against an installed capacity to produce 34.38 million tonnes of cement per annum in the state , the 19 major cement plants and four small plants manufacture only 20 million tonnes per annum . "Underutilization of the installed capacity , cartelization , syndication and rationing of supply have resulted in a rapid rise in cement prices ," noted NNandakumar ,secretary of theTNchapter of the Confederation of Real Estate Developers Association of India.

CementcostsRs 300 per 50kg bagin Tamil Nadu . In the north , it is available at Rs 190 per bag , he noted . Cement being a decontrolled commodity , state and central governments can do little to regulate prices . "But the state , which gives licence for mining limestone , has every right to interfere if the cement manufacturers indulge in unfair trade practices . If they do not fall in line , the issue should be escalated to the Competition Commission of India," opined Nandakumar.

Rising cement prices had put the brakes on government infrastructure projects in the past . When the erstwhile Kalaignar Housing project was stalled owing to spiralling cement prices a year ago , the then DMK government issued a take-over warning to private cement manufacturers . The suppliers wriggled out of the issue by offering cement to the Kalaignar housing scheme at reduced prices . But the common man was left in the lurch even then . The government did not bother much.

While cement consumption is growing at 7% per annum worldover ,in India it is increasing at 9%. The volume of cement entering the international trade is just 6-7 %of the total global production . The rest is consumed in the respective domestic markets.

Large-scale imports are the only immediate solution to tide over the present crisis , opined a senior government official. Tamil Nadu Cements , the state-owned cement supplier , is gearing up to import about five lakh tonnes of cement, out of which, about one lakh tonnes will be imported in the first phase . The government needs to speed up this process.

PAKISTAN: Pakistan’s D.G. Khan Cement Profit Rises on Prices

D.G. Khan Cement Ltd., Pakistan’s second-biggest producer of the building material, said first- quarter net profit rose because of higher prices.

Net income rose to 355.5 million rupees ($4.1 million), or 0.81 rupee a share, in the three months ended Sept. 30, from 46.3 million rupees, or 0.11 rupee, a year earlier, the Lahore- based company said in a statement to the Karachi Stock Exchange today. Sales rose to 5.3 billion rupees from 3.7 billion rupees.

Cement prices increased 25 percent to 400 rupees for a 50 kilogram bag in the north of the country during the three months ended Sept. 30, BMA Capital Management Ltd., a brokerage firm, wrote in an Oct. 20 note to clients while maintaining a “buy” stance on the stock.

“We expect the growth momentum to continue going into the second quarter on the back of a further 15-rupee hike in the cement price,” Farid Aliani wrote in the report. “Should the government decide to eliminate the subsidy on electricity another round of price hikes cannot be ruled out going forward.”

Domestic sales of the building material rose 10.6 percent to 1.6 million metric tons in August, the All-Pakistan Cement manufacturers Association said on Sept. 22. Exports fell 9.5 percent to 1.5 million tons during the two months ended Aug. 31 and local sales increased 13.6 percent to 3.7 million tons.

Total cement sales, both local and overseas, are expected to rise 8 percent to 33.9 million tons in the year ending June, Aliani said.

D.G. Khan’s shares rose 1.9 percent to 22.22 rupees as of the 3:30 p.m. local time close on the Karachi Stock Exchange.

MEXICO: Losses put Cemex under pressure

Cemex, the world’s third-largest cement producer by production, reported hefty third-quarter net losses of $821.7m on Wednesday, heightening concerns over its ability to meet forthcoming debt obligations.

The losses, which were more than twice what analysts had expected, place the Mexico-based company under increasing pressure as it struggles to meet a December covenant to lower its debt-to-earnings ratio.

As part of a $15bn bank loan negotiated in 2009 to avoid bankruptcy, the company committed to reducing its level of total funded debt to seven times earnings before interest, taxes, depreciation and amortisation by December. Last month, that ratio stood at 7.2 times.

Yet analysts were quick to point out that much of the third-quarter losses came from adverse foreign-exchange movements as well as equity derivatives on Cemex shares, which fell more than 50 per cent during the quarter.

Meanwhile, consolidated earnings before interest, tax, depreciations and amortisation grew 1 per cent to $658m for the quarter. “We see the results as positive,” said Barclays Capital in a research note. Cemex shares in New York went up 2.4 per to $3.67 in early morning trading.

Attempting to head off concerns surrounding the December covenant, Fernando González, the company’s executive vice-president of finance and administration, said in a press release on Wednesday that the company continued “to be confident in our ability to meet all of our financial obligations”.

Mr González said that Cemex had already sold $80m in non-core assets during the first nine months of this year, and planned to sell between $100m and $200m in further assets before December. The sell off is part of a plan to raise $1bn in such sales between now and the end of next year.

Fortunes turned sharply for Cemex following its $14.2bn purchase of Rinker, the Australian building-materials supplier, in 2007. The acquisition, which was funded with short-term debt, substantially increased the Mexican company’s exposure to the US and European markets just at the onset of the US financial crisis and subsequent global recession.

More recently, Cemex saw its share price plunge to 13-year lows as prospects dimmed for recovery in key US and European markets. At the same time, a rapid devaluation of the Mexican peso in recent weeks has made it more difficult for the company to pay its dollar-denominated debt.

There were several bright spots in Wednesday’s results. Net sales during the quarter increased 5 per cent to about $3.9bn, driven mainly by a 9 per cent year-on-year improvement in northern Europe where sales were $1.3bn. In the US, net sales reached $713m, up 4 per cent compared with the same quarter in 2010.