Two of Oman's cement producers join forces to target emerging markets

The development of a new cement plant at the Duqm Special Economic Zone (SEZ) marks a new chapter in Oman’s cement industry, as two rival domestic companies form a joint venture to target new markets. The two firms made announcements about the deal in mid-August 2016 via statements to the Muscat Securities Market. Oman Cement, which is based in the north of the country, and Raysut Cement, headquartered in Salalah in southern Oman, have enjoyed healthy turnover thanks to the continued growth of the sultanate’s construction sector. The new company – Al Wusta Cement – will serve new developments around Duqm once feasibility studies have been completed. Among the new projects planned at Duqm in the near future are the $10bn China-Oman Industrial Park, a 1172-ha complex which will include an oil refinery, petrochemicals complex and 1-GW solar power generation facility, among a number of other industrial facilities.

Market Share

Oman Cement and Raysut Cement were founded in 1977 and 1981, respectively, and together the firms meet 57% of Oman’s cement demand, with the remaining 43% fulfilled by imports. Both companies have complained in the past of being undercut by imports from cement companies in the UAE, which faced a glut in cement supplies after construction work in the country slowed in 2010. According to a report from Omani financial advisory firm United Securities, total annual demand for cement in the sultanate amounts to 8m tonnes. In 2010 Raysut acquired the UAE’s Pioneer Cement for $172m in order to meet market demand in the north of Oman. The company also exports its product to Yemen and nations in East Africa.

Production

In 2015 Oman Cement produced more than 2m tonnes of clinker, a 17.6% increase on the 1.71m tonnes of output recorded in 2014. The company also increased its volume of clinker imports from 242,626 tonnes in 2014 to 253,411 in 2015. Meanwhile, the firm’s cement production decreased slightly from 2.09m to 2.07m tonnes. In 2016 clinker production reached 892,276 tonnes by the end of the first half, representing an 8.54% year-on-year (y-o-y) increase over the same period of 2015. A scheduled shutdown of one of its kilns at that time forced Oman Cement to compensate for the reduced supply by importing 105,868 tonnes of clinker, though this was still less than the 129,726 tonnes imported during the same period of 2015.

Raysut Cement, which owns a plant in Salalah in addition to Pioneer Cement, saw an increase in overall clinker production of 8.1% in 2015. Meanwhile, cement output rose by a more modest 1.4% due to a drop in output at the Salalah facility. In the first half of 2016 the group saw a 8.3% y-o-y decline in clinker production, while cement output was up 6%.

Performance

As a barometer of wider construction activity in Oman, the sales performance of the two companies in 2015 suggested demand was largely unchanged from the previous year. In 2015 Oman Cement sold 2,078,641 tonnes of cement, fractionally less than the 2,078,937 tonnes sold in 2014. However, revenues over the period increased from OR51.36m ($133.4m) to OR52.18m ($135.5m).

Meanwhile, the Raysut group as a whole saw sales increase slightly from 3.81m tonnes in 2014 to 3.82m tonnes in 2015. Sales at its UAE-based subsidiary grew by 4.6% over the period, while its Salalah plant saw sales decrease by 2.7%. Despite higher sales figures across the board, the firm reported severe price competition from its UAE competitors and volatility in the export market as responsible for lower revenues, which fell 2.2% from OR66.99m ($174m) in 2014 to OR65.53m ($170.2m) in 2015.

The picture improved in the first half of 2016, as both companies reported strong growth in sales and revenues, particularly in the Omani market, suggesting an increase in construction activity in the sultanate. Oman Cement sold 1.2m tonnes of cement in the first half of 2016, a rise of around 18% on the same period in 2015, when it sold 1.01m tonnes. Revenues, meanwhile, rose by almost 17% y-o-y, from OR25.83m ($67.1m) to OR30.13m ($78.3m). Overall, Raysut Cement’s sales over the same period increased by 6.4% y-o-y, from 1.89m tonnes to 2.01m tonnes, while its revenues rose by 6.6%, from OR46.86m ($121.7m) to OR49.92m ($129.6m).

Profitability

Despite increases in turnover, profits at Oman Cement were down in 2015, with pre-tax profits falling by 12% from OR14.94m ($38.8m) in 2014 to OR13.15m ($34.2m), while net profits decreased by 11% from OR13.15m ($34.2m) to OR11.71m ($30.4m). The company blamed this decline on the doubling of gas prices – a state measure introduced on January 1, 2015 – as well as on the impact of its scheduled kiln closure and a decline in the value of some of its investments. Raysut also highlighted the increase in gas prices as the reason for a 17.6% fall in pre-tax profits, from OR30.39m ($78.9m) in 2014 to OR25.05m ($65.1m) in 2015. The company’s net profits similarly dropped from OR27.43m ($71.2m) in 2014 to OR20.95m ($54.4m) the following year, representing a 23.6% decrease.

Figures from the first half of 2016 were far more positive, as Oman Cement and Raysut Cement saw increases in profitability. Oman Cement posted pretax profit growth of 26% y-o-y, and profits after tax were up 24.9%, from OR5.44m ($14.1m) to OR6.79m ($17.6m). At the same time, Raysut saw pre-tax profits rise 17.3% y-o-y, from OR12.18m ($31.6m) to OR14.29m ($37.1m). After tax, growth was 17.8% y-oy, from OR10.96m ($28.5m) to OR12.91m ($33.5m).

High Potential

First-half 2016 results for Oman’s two cement producers point to strong growth in profitability. In addition to the firms’ joint venture in Duqm, each company is investing in improvements to its production facilities and tapping new markets that offer the prospect of increased revenues and future growth. Raysut Cement reported in July 2016 that it had completed a new wharf at Duqm, which it hoped to be using by the third quarter of the year, and that a new 150-tonne-per-hour packing machine and truck loader was due to be commissioned by the end of 2016. In August 2016 the parent company announced it would upgrade its gas supply station at Salalah, boosting its annual production capacity from 130,000 to 140,000 tonnes, while a 12,000-tonne silo is also due to be commissioned by the end of November 2016 at the firms UAE-based subsidiary. Oman Cement is also pursuing significant development plans, having recently awarded a $11.3m contract to the Danish engineering firm FLS midth to upgrade pollution control equipment at one of its production lines to reduce emissions in 2017. Ongoing improvements to the sultanate’s transport links will broaden and optimise the distribution networks of both companies, complementing both firms’ operational procedures to achieve greater profitability.