Soaring energy costs are squeezing the profits of cement producers as they struggle to gain access to natural gas resources, according to a report by The National Investor investment group.
Energy makes up about 60 per cent of the cost of manufacturing cement. So a shortage in the supply of natural gas, combined with pressures to keep up with strong demand, has forced some producers to either switch to more expensive fuels, such as diesel, or temporarily rely on power generators.
For the third quarter in a row, the Ras al Khaimah-based Union Cement Company (UCC) - with a market share of 15 per cent - recorded a slide in its profit margin to less than 20 per cent, compared with an historical average of 35 per cent, according to the report by the group.
UCC's net income in the second quarter of this year fell to Dh38.22 million (US$10.41m) comparedwith Dh96.06m in the same period last year. Its gross profit margin for the full year is expected to be 18.6 per cent.
UCC has been using diesel and hired power generators to make up for power supply shortages.
RAK White Cement, another major producer in Ras al Khaimah, recorded a net loss of Dh1.35m in the second quarter.
Gross profit margins for cement producers across the board were averaging 15.7 per cent, according to Hassan Awan, an analyst at The National Investor and one of the report's authors.
"This has been going on for a long time now and margins across the board have been affected," he said. "It's because there's a shortage of natural gas. Some companies are using more expensive liquid fuels. As long as they continue to do this, then margins will be squeezed."
Mr Awan added that a move towards using imported coal should help improve profits in the long-term. "For example, UCC started to use coal at the end of June, which wasn't recorded in the second quarter results, but this will improve margins," he said.
Producers were once at liberty to increase their prices to offset high energy costs but, to control prices, the Ministry of Economy stepped in last year and capped the price of cement.
Last year's cap was set at Dh295 per tonne, and it has since gone up by about 15 per cent to Dh340 per tonne.
While the cap has helped producers, the rising cost of transport raw materials and labour continues to eat into profit margins.
"With the price of crude and transportation costs going up, I speculate that the Government might increase the cap again in the future," said Mr Awan.
Meanwhile, the profit margin for Arkan Cement, the Abu Dhabi cement producer, remains at a robust 30 per cent due to a steady flow of natural gas. "We as a company don't suffer as badly as other companies as we have a long-term supply contract for gas with the Abu Dhabi Government," said Jeremy Rowson, its chief operating officer.
The region's major cement manufacturers are investing heavily in expanding their production capacity to keep up with demand, which is expected to be further fuelled by the multi-billion construction projects either already underway or planned in the northern emirates.
Arkan alone is building a Dh1.3 billion factory in Al Ain, which will be operational by end-2009. The factory will produce 3.1 million tonnes of clinker, a type of brick, and will have a grinding capacity for 4.5 million tonnes of cement.
Fujairah Cement is also expanding its capacity.
Cement consumption in the UAE has grown by 25 per cent in each of the past four years. But Mr Awan said there remained "a lot of ambiguity" as to how much pent-up demand remained.
"The general consensus is that there is Dh4.7 trillion worth of projects in the GCC, but there's no absolute statistic on what the actual proportion of projects under construction is worth, so demand could actually be higher," he said.
"The smaller emirates have just started to position themselves with their own multi-billion dollar projects. Because of this, we now feel that the situation might not necessarily level itself out in the near future."
@Email:agiuffrida@thenational.ae
The Sand Castle
Director: Matty Brown
Stars: Nadine Labaki, Ziad Bakri, Zain Al Rafeea, Riman Al Rafeea
Rating: 2.5/5
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
Game Changer
Director: Shankar
Stars: Ram Charan, Kiara Advani, Anjali, S J Suryah, Jayaram
Rating: 2/5
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
Emergency
Director: Kangana Ranaut
Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry
Rating: 2/5
India cancels school-leaving examinations
How it works
A $10 hand-powered LED light and battery bank
Device is operated by hand cranking it at any time during the day or night
The charge is stored inside a battery
The ratio is that for every minute you crank, it provides 10 minutes light on the brightest mode
A full hand wound charge is of 16.5minutes
This gives 1.1 hours of light on high mode or 2.5 hours of light on low mode
When more light is needed, it can be recharged by winding again
The larger version costs between $18-20 and generates more than 15 hours of light with a 45-minute charge
No limit on how many times you can charge
Moon Music
Artist: Coldplay
Label: Parlophone/Atlantic
Number of tracks: 10
Rating: 3/5
Super 30
Produced: Sajid Nadiadwala and Phantom Productions
Directed: Vikas Bahl
Cast: Hrithik Roshan, Pankaj Tripathi, Aditya Srivastav, Mrinal Thakur
Rating: 3.5 /5
Financial considerations before buying a property
Buyers should try to pay as much in cash as possible for a property, limiting the mortgage value to as little as they can afford. This means they not only pay less in interest but their monthly costs are also reduced. Ideally, the monthly mortgage payment should not exceed 20 per cent of the purchaser’s total household income, says Carol Glynn, founder of Conscious Finance Coaching.
“If it’s a rental property, plan for the property to have periods when it does not have a tenant. Ensure you have enough cash set aside to pay the mortgage and other costs during these periods, ideally at least six months,” she says.
Also, shop around for the best mortgage interest rate. Understand the terms and conditions, especially what happens after any introductory periods, Ms Glynn adds.
Using a good mortgage broker is worth the investment to obtain the best rate available for a buyer’s needs and circumstances. A good mortgage broker will help the buyer understand the terms and conditions of the mortgage and make the purchasing process efficient and easier.
Paatal Lok season two
Directors: Avinash Arun, Prosit Roy
Stars: Jaideep Ahlawat, Ishwak Singh, Lc Sekhose, Merenla Imsong
Rating: 4.5/5
Dubai Bling season three
Cast: Loujain Adada, Zeina Khoury, Farhana Bodi, Ebraheem Al Samadi, Mona Kattan, and couples Safa & Fahad Siddiqui and DJ Bliss & Danya Mohammed
Rating: 1/5
COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
COMPANY%20PROFILE
%3Cp%3E%3Cstrong%3ECompany%20name%3A%3C%2Fstrong%3E%20Dresos%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStarted%3A%3C%2Fstrong%3E%20September%202020%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EFounders%3A%3C%2Fstrong%3E%20Vladimir%20Radojevic%20and%20Aleksandar%20Jankovic%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EBased%3A%3C%2Fstrong%3E%20Dubai%2C%20UAE%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EIndustry%3A%3C%2Fstrong%3E%20Fashion%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EFunding%3A%3C%2Fstrong%3E%20%24285%2C000%3B%20%24500%2C000%20currently%20being%20raised%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EInvestors%3A%3C%2Fstrong%3E%20Crowdfunding%2C%20family%2C%20friends%20and%20self-funding%3C%2Fp%3E%0A
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
COMPANY%20PROFILE
%3Cp%3E%3Cstrong%3ECompany%20name%3A%3C%2Fstrong%3E%20Revibe%20%0D%3Cbr%3E%3Cstrong%3EStarted%3A%3C%2Fstrong%3E%202022%0D%3Cbr%3E%3Cstrong%3EFounders%3A%3C%2Fstrong%3E%20Hamza%20Iraqui%20and%20Abdessamad%20Ben%20Zakour%20%0D%3Cbr%3E%3Cstrong%3EBased%3A%3C%2Fstrong%3E%20UAE%20%0D%3Cbr%3E%3Cstrong%3EIndustry%3A%3C%2Fstrong%3E%20Refurbished%20electronics%20%0D%3Cbr%3E%3Cstrong%3EFunds%20raised%20so%20far%3A%3C%2Fstrong%3E%20%2410m%20%0D%3Cbr%3E%3Cstrong%3EInvestors%3A%20%3C%2Fstrong%3EFlat6Labs%2C%20Resonance%20and%20various%20others%0D%3C%2Fp%3E%0A
UEFA CHAMPIONS LEAGUE FIXTURES
All kick-off times 10.45pm UAE ( 4 GMT) unless stated
Tuesday
Sevilla v Maribor
Spartak Moscow v Liverpool
Manchester City v Shakhtar Donetsk
Napoli v Feyenoord
Besiktas v RB Leipzig
Monaco v Porto
Apoel Nicosia v Tottenham Hotspur
Borussia Dortmund v Real Madrid
Wednesday
Basel v Benfica
CSKA Moscow Manchester United
Paris Saint-Germain v Bayern Munich
Anderlecht v Celtic
Qarabag v Roma (8pm)
Atletico Madrid v Chelsea
Juventus v Olympiakos
Sporting Lisbon v Barcelona