This week CemNet reported on the cooperation agreement between two cement producers in the UAE – Al Ain Cement Factory (Arkan Group) and National Cement Factory. This is the latest of several trends that suggest that cement production in the UAE is changing with manufacturers looking to put themselves on firmer footings in the build-up to Expo 2020 (20 October 2020-10 April 2021).

In a recently-published report, the Dubai government recently highlighted that the Expo 2020 would contribute more than AED122.6bn (US$33.4bn) to the country's economy by 2031. Adding almost 100,000 new jobs to the economy and millions of AED for investment in infrastructure and construction, it is a golden ticket for UAE cement producers that have suffered hard times in recent years.

The Expo 2020 project should see Dubai elevated on the global map with an estimated US$5bn construction contracts directly linked to the Expo and around 25m visitors expected at the 438ha site, reports Arabian Gazette. An entirely new suburb, District 2020, will be a smart site embracing sustainability and innovation with residential developments, global retail brands, modern office space and more than 45,000 green spaces.

Industry restructuring
The cement industry is expected receive a boost as it implements the vision of Expo 2020. Of late, cement prices have been stable, according to Mohammas Farooq, managing director of Dubai Walls Construction. "They have been stable for the last seven months [September 2018-March 2019] or so, and that's because local production had increased capacity quite significantly. These days, a 50kg bag could be bought for AED12.20 [down] from AED12.50-12.70."

However, it is clear that the cement sector in UAE has not been able to utilise anywhere near its full capacity in the run-up to the opening of Expo 2020. Cement firms have had to adapt to the market conditions to put themselves in better financial shape. It has been a story of cost reductions and sell-offs.

Arkan Group is one of the cement companies that has been forced to restructure in recent months. It reported 9MFY19 business results of AED676.9m, flat in comparison to AED677.6m 9MFY18. Declining clinker sales and competitive cement pricing in the domestic market and clinker imports from Iran have eliminated profits. As a result, Arkan sold its Emirates cement plant in February 2019 for AED50m to an undisclosed buyer, leaving it to operate the modern 4.5Mta Al Ain Cement Factory.

Indian players take interest
An additional trend has been the arrival of more Indian cement producers, such as Shree Cement which completed the acquisition of Union Cement Co in 2018 for US$305.24m. Union Cement Co runs a 4Mta integrated plant in Ras Al Khaimah, which made Shree Cement an immediate big player in the domestic market.

The fall of another cement producer has also enabled another Indian cement producer to enter the market. UltraTech Nathwara (Aditya Birla) acquired the Binani Cement operations, last year. UltraTech Nathwara now owns the 2Mta grinding plant in Jebel Ali, UAE.

The share of India's producers will be further reinforced with the arrival of JSW Cement at the end of 2019, when it intends to complete the building of a 1Mta greenfield clinker plant in Fujairah at a cost of US$150m.

Beyond Expo 2020
Demand for cement has been buoyed up by the momentum surrounding Expo 2020, but the underlying structural challenges remain for the UAE cement sector. A decade of overcapacity and low utilisation rates is taking its toll, and incumbents are looking to withdraw from this highly competitive market, including LafargeHolcim and Cemex, both of which have been rumoured to be up for sale for years - with no takers yet.

Therefore, market pressures towards further consolidation in UAE are likely to become stronger, and the move this week by Arkan and National Cement Factory to form a clinker supply agreement would tend to confirm this.

Those that survive hope the market will continue to grow, bolstered by the expectation that Dubai's population is forecast to nearly double to around 5m by 2030. In addition, the Expo 2020 site will undergo redevelopment in 2021 before opening as a Free Trade Zone, while 120,000 new homes are planned to be built by 2020.