Cement crisis is temporary as imports ease demand

UAE demand likely to stay between 12 and 13 million tonnes a year for the next five years

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By  Eudore Chand Published  June 12, 2004

The cement crisis in the UAE is temporary and the shortage is likely to be over within a couple of months, according to a top official of the Building Materials Group, and a leading supplier. However, the price of cement is still rising. The average rate had reached Dhs340/tonne by the 5th June as against Dhs250/tonne as of the 1st May. At the end of May, traders said the ruling price of a 50 kg bag was Dhs19 - 21. In the past month, contractors said producers raised the price of cement on the 1st, 10th, 13th, 17th and 22nd of May. However, Shyam Bhatia, vice chairman of the Building Materials Group says orders have been placed for importing cement and related products and that shipments have begun to arrive. He says that the gap between demand and supply would fill up soon: “The shortage is temporary. It will be over in a couple of months.” Bhatia is also the managing director of major supply firm of Alam Traders. “Cement will have to be imported. There is no need to panic. The price will settle down. Cement will come from Europe, India and South Africa, which are the main options. Even from Saudi Arabia, which has a surplus,” Bhatia says. However, some block manufacturers and readymix companies are feeling the pinch. They are reported to have reduced operations due to the high prices. “The increase in cement and related products is coming directly from the producers through almost weekly notices,” one blocks manufacturer told Construction Week. Bhatia estimates that the current shortfall is greater than 2 Mt/year. “Today, the demand is about 12 Mt/year, while the combined full capacity is about 10 Mt/year,” Bhatia said, estimating that actual production would be nearer to 8 Mt/year. Summer is the traditional time for undertaking maintenance works and actual production is generally lower than the installed capacity. There are 11 cement factories in the UAE with a total kiln production capacity of 8 Mt/year and a grinding capacity of 10.6 Mt/year. For several years, the UAE was a net exporter of cement and that is one of the reasons being cited for the time being taken to set up import channels. “It takes time for imports to reach here,” Bhatia said. The construction boom has fuelled the shortage. “Five years ago, the demand for cement stood at about 4 -5 Mt/year. It has shot up to 12 Mt/year and I expect it stay at the 12-13 Mt/year level for the next five years, sustained by the many construction projects in the UAE,” Bhatia says. He says that cement factories are increasing prices regularly. To take advantage of the situation, they are cutting out the wholesaler and negotiating directly with the user. “Factories have begun to sell direct. They are reducing the distributors’ quotas. Factories sometimes are unfair to a trader who has been working with them for years. The trader is not a user and factories are selling directly to the contractors. Today, all are taking advantage and asking for cash,” Bhatia said. The vice-chairman of the Building Materials Group was also critical of the accusations leveled against the building materials suppliers by contractors. “You cannot blame anybody. Prices rose because of shortage. The UAE has always practiced free trade and no industry has protection. We all have to compete,” Bhatia said. He pointed out that the trader’s cost of buying a 50 kg bag of cement from the factory is about Dhs17. “When you add Dhs1.50 or even Dhs1 for logistics costs, it comes to Dhs18. We need a 10% profit margin. How can we sell at less than Dhs20?” Bhatia asks. He describes the impact of the Omani ban on exports of cement, as almost negligible. “More than what Oman sent here, the UAE used to send to Qatar,” Bhatia said.

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