Sun sets on cement

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CRISIS: Energy makes up 60 percent of the cost of manufacturing cement.

Last year's cap in the UAE was set at $80 per tonne, and it has since gone up by about 22 percent to $98 per tonne.

However, calls have been made from some within the industry that the government had to allow price increases or producers would face collapse.

"In a fair economy how can there be a cap?" asks Gorgunel.

"The government has to invest more in energy sources. I am not a politician, but better nuclear and gas facilities are certainly needed."

Kumar agrees that capping is not sustainable in the long-run and says that if the government does not improve the availability of gas, contractors may look abroad to buy cement.

He says: "You can't cap the prices all the time as there are sometimes supply constraints and the rising cost of materials is impacting on margins.

"The government should supply producers properly with raw materials and if it can't, more cement may be imported from Pakistan, where plants are running on gas and there is not much of a market in Pakistan.

"The problem is that coal is one of the main components for cement-making generators in the UAE but the price is impacting on profit margins," he continues.

"The price is rising because of supply constraints from South Africa and Australia, which are the largest coal exporters, combined with increasing demand in China and India as they become more industrialised and developed."

But while some manufacturers of regular cement make the switch to alternative forms of energy such as diesel and coal, RAK White Cement has no choice but to ride out the power blackouts as gas is the only viable fuel for the production of the white cement it makes for wall and flooring decorating.

And Elkunchwar fears his factory may lose out to competitors in emerging markets if it cannot maintain a consistent level of production.

"We have no choice and have to wait until supply is restored," he says. "But our customers are very unhappy and they may have to import from Pakistan, India and Thailand.

"We've lost some contracts as we can't guarantee a consistent supply.

"There's plenty of gas in Qatar and Oman but we have to get our gas through the government's pipeline."

Kumar believes if the fuel crisis continues, cement producers in the UAE may have to shelve any plans to expand

He says: "Firms might think of halting or delaying expansion plans but I would not think cutting staff or shutting down plants would be the case.

"There needs to be an increase in the availability of natural gas. Oman does not have oil reserves and Qatar has one of the world's biggest gas supplies so they are better placed to set up gas facilities."

Sager Patel, a cement analyst with Bank Muscat, agrees that producers in Qatar, Oman and Saudi Arabia are not as exposed to power shortages.

He says: "There are two suppliers in Oman and they both use natural gas so it's not an issue as the government is supplying them with enough gas.

"In Saudi Arabia everyone uses natural gas and there is more availability, so the problem is more specific to the UAE."

He says a solution to the scarcity of gas could be the Dolphin gas project in Qatar, which is linking Qatar's vast North Field to the UAE and Oman.

But until this and other projects start to increase supply, RAK White Cement and fellow cement producers may continue to feel the pain for some time to come.

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