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Cement producers hit hard by stiff competition, higher material costs

7 Nov 2019

Earnings of Oman’s major cement producers have been hit hard this year due to intense price competition from suppliers in the neighbouring countries and increased cost of essential raw materials. 

With significant drop in sales volumes and lower price realisation, Raysut Cement Company and Oman Cement Company reported sharp declines in their net profits for the first nine months of 2019. 

Raysut Cement, one of the leading cement producers in the Gulf region, announced that its group net profit fell 49.25 per cent to RO1.01mn in the nine months ended September 30, 2019 compared with nearly RO2mn net profit reported for the corresponding period of last year. 

The sharp decrease in profit was due to lower sales realisation per tonne of cement sold, higher raw material costs, and increase in finance cost due to higher interest rate on loans, Raysut Cement said in the company report submitted to the Muscat Securities Market (MSM). 

Group revenue of sultanate’s largest cement producer decreased 2.97 per cent to RO62.13mn in the first nine months of 2019 from RO64.03mn in the same period of 2018. ‘The changes in revenue is due to change in production mix as well as change in company strategy relating to the sales and lower realisation,’ Raysut Cement said. 

In spite of severe price competition from the UAE suppliers and the volatility in the export market, Raysut Cement said the parent company achieved overall sales revenue of RO43.02mn during the first nine months of this year against RO43.87mn in the same period of 2018, a decrease of 1.94 per cent. 

The parent company’s net profit fell 75 per cent to RO0.67mn in 2019 from RO2.67mn in the same period of last year. 

‘Various cost reductions initiatives coupled with optimisation of distribution of cement, keeping market share and profitability in mind, would be the major area of attention in the coming years. With those internal initiatives the company is hopeful to minimize the market pressure to a great extent,’ Raysut Cement said. 

On the other hand, Oman Cement reported a 57.28 per cent decline in net profit for the first nine months of this year. The company’s net profit fell to RO2.66mn for the January–September period of 2019 compared to RO6.23mn in the same period a year ago. Oman Cement’s sales revenue for the first nine months of 2019 decreased 3.28 per cent year-on-year to RO36.12mn. 

‘This decline in value of cement sold is on account of intense competition in the market requiring company to adopt dynamic pricing strategy. The decrease in profit is mainly due to lower average sales realisation on cement sold during the period,’ Oman Cement said in the report submitted to the MSM. 

It said, ‘Though intense competition due to lower prices from cement producers from neighboring countries as well as domestic producers had an adverse impact on our selling prices and profits, we have taken elaborate measures to minimize the impact. With the company’s sustained ongoing efforts, we expect that even with continued stiff competition with other cement manufacturers, the company will be able to retain its market share.’ 
 

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