Set in stone: Regional leaders in building materials plan to expand

Early investments that leveraged Ras Al Khaimah’s natural resources have attracted a number of private and public operators to the building materials industry. Indeed, the emirate is home to a number of global and regional players in the cement and ceramics segments. RAK has vast limestone deposits in the Hajar Mountains, the site of the largest quarry in the Middle East. These resources have provided the emirate’s construction sector with a firm foundation, enabling it to produce a range of building materials.

Quarry

RAK’s quarry produces some 65m tonnes of limestone each year. It is operated by Stevin Rock, a leading quarry manager in the region. The company was established in 1975 as a subsidiary of Volker Stevin, a Dutch firm, and in 1996 it was acquired by RAK’s ruler at the time, Sheikh Saqr bin Mohammed Al Qasimi. The government’s Investment and Development Office subsequently bought 99% of its shares in 2004. Finally, Stevin Rock merged with RAK Rock in 2007, making it one of the largest producers of limestone in the world. It employs some 1600 workers. Stevin Rock owns three quarries in RAK – Khor Khuwair, Al Ghail and Kadra. These quarries have a combined total of 7bn tonnes of surveyed reserves. Material from the quarries has fed into major building and infrastructure projects in RAK, the UAE and the broader GCC region, including Dubai’s Burj Khalifa, metro, airport and Dubai Mall, and Qatar’s Ras Laffan. Khor Khuwair is the largest of Stevin Rock’s three quarries, with a daily production capacity of 5000 tonnes per hour. Al Ghail has a particularly pure quality of limestone and dolomite; a recently inked deal will see 11m tonnes of limestone shipped to India’s factories, where it will be used to process steel. Finally, Kadra is the company’s hard rock quarry, with 20% of the output being exported to Qatar. Quarry & Mining, a limited liability company established under an industrial licence in RAK, is eyeing investments to modernise the quarry. The company serves as the Middle East agent for Kleeman and Stiebel and constructs and installs bulk material handling processes and machinery. The company was established in partnership with the RAK government with paid-up capital of Dh1.5bn ($408m), according to pre-qualification documents published by the firm.

Modernising

According to Construction Week Online, the company specialises in installing conveyors to handle bulk material. The firm is currently testing the deployment of large-scale conveyor belts to replace the expensive practice of using mining trucks to transport the raw material. Primary crushers with a capacity of 2500 tonnes an hour will be linked to a kilometre-long conveyor belt that transports material to processing units at the bottom of the mountain. This is the first time the technology is being used in the Middle East, and is expected to reduce the cost of transporting raw material by over 60%.

Cement Players

Union Cement Company was set up in 1972 in Khor Kwair and was the first cement company in the UAE. The company has a total cement production capacity of 4.8m tonnes and a total clinker production capacity of 4.5m tonnes, making it the largest cement producer in the Gulf region. The company has supplied some of the biggest projects in RAK, including the Al Hamra development and Etisalat’s building in RAK’s city centre. It is also a major supplier for Dubai’s Business Bay.

According to GCC financial market researcher Gulfbase, the government of RAK and the Abu Dhabi Investment Authority hold 40.84% and 20.35% stakes in the firm, respectively, and private investors own the remaining shares. The company announced a net profit of Dh48.5m ($13.2m) for 2012 after posting a loss of Dh25.5m ($6.14m) in 2011.

The Gulf Cement Company is the UAE’s largest cement producer and is a regional leader in cement exports. The company employs over 600 people and exports its output to more than 11 countries worldwide. Gulf Cement has supplied major projects in the UAE, including the iconic Burj Khalifa in Dubai, and it has a total production capacity of 2.7m tonnes of cement and 3.8m tonnes of clinker. Revenues in 2011 and 2012 were Dh603m ($164m) and Dh607 ($165m), respectively. However, costs were higher still, at Dh655m ($178m) and Dh619m ($168m) in the same two years, resulting in losses of Dh55m ($15m) in 2011 and Dh6.7m ($1.8m) in 2012. This represents a significant change for the company, which had posted a profit of more than Dh400m ($109m) in 2007.

The Gulf Cement Company’s financial reports show that a major factor behind the losses in 2011 and 2012 is the high cost of inputs: fuel, electricity and water accounted for more than Dh491m ($133m) of expenditure in 2012. However, the board of directors proposed a cash dividend of 5% amounting to Dh41.1m ($11.1m) at the February 2013 board meeting, indicating that the firm is confident of future growth.

The RAK Cement Company is another major player in the local construction market. The firm, established by the government in 1995 as a public shareholding company, has a total production capacity of 1m tonnes of cement and 960,000 tonnes of clinker. The manufacturer employs 150 people, making it the most efficient cement manufacturer in the country.

RAK Cement had revenues in excess of Dh325m ($88.4m) in 2006, posting a profit of Dh126m ($34.2m). Falling prices and high input costs, compounded by lower demand, resulted in a drop in rev enues to Dh219m ($59.6m) in 2012, leading to a net loss of Dh7.3m ($1.98m). This is, however, a significant improvement over 2011 when the firm posted a net loss of Dh20m ($5.4m).

New Niche

The company entered the oil and gas services market in 2011 to produce cement for oil wells. The specialty cement is used in on- and offshore oil wells because it is able to withstand temperatures of up to 260°C due to the addition of coke, iron ore and iron scrap into the mix.

RAK White Cement produces 450,000 tonnes of high-quality cement each year. The company was set up in 1986. It sells around 25% of its production locally and exports the rest within the UAE and further abroad. The company has seen revenues grow from Dh102m ($27.8m) in the year up to March 2012 to Dh112m ($30.4m) by March 2013. Net profits, however, dropped from some Dh16.7m ($4.54m) in 2012 to Dh13m ($3.54m) in 2013. The company points to higher costs and investments to upgrade production capacity as reasons for this dip in profits. RAK White Cement recently set up a new $27m production line and is also upgrading existing kilns to increase total capacity to an estimated 580,000 tonnes per year.

Environmental Consideration

Several environmental concerns have been raised about RAK’s quarries and cement factories, particularly regarding the health impact of dust linked to the blasting, crushing and transporting millions of tonnes of material from the quarries. The UAE University recently presented findings to the Federal National Council warning on a possible link between air pollution and health issues.

The federal government introduced strict air-quality guidelines in 2008 to stop quarries generating clouds of dust and toxins, but these laws had been loosely enforced in the quarries in RAK and Fujairah. In 2012 the Ministry of Environment and Water added reforms that would force all cement factories to provide independent reports on pollution levels. The government is also responding to concerns from residents near the Khor Khuwair quarries with a number of reforms, starting with the establishment of the RAK Environmental Protection and Development Authority in 2007. The authority promotes environmental standards for industries and is working with developers to ensure they purchase materials from companies that uphold the same standards. RAK Rock and Stevin Rock, for example, have been leaders in this regard.

Supply & Demand

RAK’s natural resources and the number of globally competitive companies processing and distributing cement represents a major competitive edge for its construction sector. However, managing production to meet but not exceed demand entails striking a delicate balance. The fall in sales due to the number of dropped or delayed construction projects across the UAE and the GCC during the global financial crisis inevitably hit RAK’s cement companies. While projects are gradually coming back on-line, it will take several months before the cement companies see demand for raw materials grow.

Regional competition from Oman is another threat to homegrown cement companies. RAK’s neighbour is also leveraging its natural resources and has invested heavily in boosting cement production. However, the emirate is strongly positioned to ride out the current uncertainty, and it is further likely that major infrastructure construction across the UAE and Saudi Arabia will boost demand over the medium term. Qatar’s preparations for the World Cup will also be a significant factor stimulating demand for cement. Finally, investments to improve RAK’s ports and rail connections will ease transportation bottlenecks and help open up additional markets for producers.