investment drive
25/09/2016 06:08 AST
The Sultanate’s building materials industry and mainly the cement sector has been a beneficiary of the country’s long term plan of diversifying its economy. Oman’s primary focus has been on the development of its manufacturing sector, logistics and transportation infrastructure and tourism industry to achieve its objectives of steady and sustainable growth by decoupling the economy from hydrocarbon revenues and increasing contribution of other sectors.
Accordingly, the Government’s Eighth Five Year Plan (2011-2015) provided multi-billion Rial cash injection to the construction industry, earmarking around RO 2.5 billion a year to develop infrastructure. The Ninth Five Year Plan too, which is the last of the series of Five-Year Plans for the Vision 2020, aims to reduce non-core expenditure in favour of additional attention towards investment spending on selected key developmental programmes and projects. Thus a stable pipeline of projects has continued over the recent years and extended through 2016 with mega projects like the Oman National Railway (cost RO 6 bn), Muscat International Airport (cost RO 0.7 bn), Salalah International Airport (around RO 364m), Liwa Plastic Industries Complex (cost RO 2.5 bn) in addition to investments in Duqm, power and water projects and development of Integrated Tourism Complexes (ITCs).
As the government’s investment drive has been supportive for the construction industry, Oman’s cement demand exceeds the production capacity of the two local producers, namely, Oman Cement Company SAOG and Raysut Cement Company SAOG and the country continues to be a net importer of cement. Combined production capacity of the two local producers is set to increase from 7.3 million tonnes per annum to 8.4 million tonnes mainly from Oman Cement’s fifth cement mill that will commence commercial production this year. They have a combined market share of around 50 per cent in Oman, while the balance demand is met by neighbouring producers. Oman is the core market for locally produced cement, with around 70 per cent of the sector’s revenue coming from local sales.
Recently, the two local producers have entered also into a joint venture and registered a new Company with the Duqm Special Economic Zone Authority. The new Company, Al Wusta Cement Company LLC, proposes to set up a new cement plant in near future subject to detailed feasibility studies. Although the new Company is still in the very early stages of appointing consultants to conduct studies; once the new proposed cement plant is set up and operational, it will add value to the two players and further strengthen their position in Oman against the competition.
While the local cement producers have a strong hold of the market, they continue to face stiff competition from competitively priced imports. Off late the sector has also witnessed certain new challenges, mainly on the operational side in view of the recent cost escalations including the natural gas price hike that has impacted its earnings and profitability from the start of 2015. However, higher productivity from enhanced facilities and increased cost management efforts enabled the companies to partially mitigate the adverse impact of steep cost escalations, supporting their overall performance in a challenging market environment.
Thus going forward, business outlook for Omani cement producers is positive backed by firm demand from steadily continuing infrastructure projects such as roads, ports, airports, railways, special economic free-zones, integrated tourism complexes and related facilities. As per industry reports, Oman’s construction industry is expected to see real growth in value of 3.4 per cent in 2016 to RO 2.21 billion, which would support cement companies’ sales volumes. In the near term, although higher costs would continue to pressurise profit margins; earnings growth will be driven by higher sales supported by additional capacity and enhanced productivi
Oman Daily Observer
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