Mega construction projects in Oman drive demand for cement

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Mega construction projects in Oman drive demand for cementMuscat: Oman’s cement demand is projected to grow at an annual rate of 6 per cent for the next four years, thanks to a surge in demand for the product driven by mega infrastructure projects and tourism ventures.

The country’s long-term plans and initiatives to develop transport infrastructure, tourism facilities and industrial zones will provide the required stimulus for the continuing growth of the cement industry. “Hence according to industry sources, cement demand in Oman is expected to rise in line with that in the region, at an average annual rate of six per cent through 2016,” said a research report released by Al Maha Financial Service here.

The value of contracts awarded across the sectors is expected to double from an estimated OMR2.6 billion last year to about OMR4.88 billion in 2014, according to industry reports. With a rise in the number and scale of construction projects in the Sultanate and the region, demand for cement is expected to grow at the same pace.

7.2m tonne capacity
A bulk of the cement demand is met by the two major local players — Raysut Cement Company and Oman Cement Company — which have a combined annual clinker production capacity of six million tonnes and cement production capacity of 7.2 million tonnes. Besides the local companies, a chunk of the domestic demand is met by foreign players which currently account for nearly two million tonnes of cement sales in Oman.

The two companies last year recorded a combined sales volume of 5.8 million tonnes at an average realisation of OMR24.99 per tonne.

Al Maha said that the local cement producers have been operating at optimum capacities to meet the local cement demand and achieve maximum efficiency in order to compete with the foreign producers.

“The two companies operate at a utilisation of 80 per cent of their total 7.2 million tonne annual capacity, producing 5.8 million tonnes of cement last year,” noted the report.

In 2011, the cement capacity almost doubled as the two companies added additional capacities and also as Raysut Cement acquired Pioneer Cement in the UAE. However, due to the planned up-gradation and modernisation efforts as well as some temporary shutdowns, the combined utilisation of the two companies stood at 69 per cent in 2011.

“As the cement demand improves and the plant up-gradation and expansion is completed, the companies are expected to record higher production and utilisation levels with the modernised facilities in the coming years.”

“We also expect the realisations to stabilise at the current levels and show marginal improvement in the coming years as the competitive pressure eases and the excess capacity is absorbed by the commencement of various mega projects announced in the region.”

According to a recent report, of the OMR45 billion projects planned or underway in Oman, transportation sector accounts for a major share focusing on rail, sea, roads and airports with the 2244-km national rail project being the cornerstone of the infrastructure programme.

Tourism ventures
The mega rail network will connect the major industrial hubs as well as also link the GCC railway. Among other major projects are the construction of new airports and expansion of the existing airports and road network.

Besides the transportation sector, Omani government’s focus on tourism development activities is leading to demand for new hotels and properties.

“The next few years will see domestic demand for cement continue to rise as the government rolls out major infrastructure projects and private investors push ahead with their investment plans,” the report said.  Omani cement revenues grew to an average of OMR145 million for the last three years.

Revenues have also been supported by higher exports of the locally produced cement to neighbouring GCC countries, Yemen and East Africa.

Total cement exports amounting to an average of OMR41 million each year over the last three years, which is around 28 per cent of the total cement revenues during the period.

With a positive outlook for cement demand, the two local cement producers are expanding their capacity and operational processes to meet the domestic and international demand.

Oman Cement is upgrading its Kiln-1 which is expected to be completed by the first half of the current year and the company is also adding a new cement grinding mill with a capacity of 150 tonnes per hour that is expected to be operational by the end of next year.

In addition to adding capacity, Oman Cement is creating supporting infrastructure of cement silos and bulk dispatches and plans to modernise Line-2.

Raysut Cement too is expanding its domestic and international operations by building two cement terminals in Duqm port and in Berbera Port, Somalia. The company is also establishing a grinding plant in Yemen through local partners and is expanding production capacity and processes of its UAE subsidiary Pioneer Cement.

The capacity and operational expansion will enable companies to boost production and cater to the increasing demand in the coming years while also supporting their current profitability levels and reducing dependence on imports.

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