Infrastructure-related stocks in the Middle East and North Africa (MENA) are forecast to grow 24 percent in new contract awards and 30 percent growth in new awards for the GCC in 2010, Credit Suisse said in a note on MENA Infrastructure this month. “It is expected 2010 to be another good year,” it added. It also noted that Saudi Arabia and UAE will likely remain the main drivers for growth and the largest construction markets in the region. “Saudi Arabia and the UAE (Abu Dhabi) are to be the main drivers, with 69 percent of the total of $208 billion in awards for 2010.” The brokerage expects the two countries getting new contracts of about $79 billion and $64 billion respectively in 2010. Saudi Arabia emerged as an important construction market in the GCC in 2009, with new construction awards up from $16.2 billion in 2008 to $46.7 billion in 2009 and an increase in cement demand of 23 percent to 37mt. For 2010, “we expect that oversupply will remain an issue for the UAE, where we expect a utilization rate of less than 50 percent, whereas in Saudi Arabia we expect the utilization rate to drop marginally from 87 percent in 2009 to 83 percent in 2010. “We expect Kuwait and Qatar to remain net importers of cement in 2010, but pricing in Oman could be under pressure as a result of cement imports from neighboring countries.” Sector-wise, the oil & gas and power would dominate the market for new awards, with a combined 57 percent share in 2010.Saudi Arabia witnessed a strong 23 percent y-o-y increase in local cement demand for 2009. Cement exports from Saudi Arabia, however, declined 57 percent y-o-y and went from 8.7 percent of total production in 2008 to 3.2 percent in 2009, as a result of an export ban. But the rise in local demand more than compensated for this fall in cement exports as total cement sales (local deliveries + exports) increased 16 percent y-o-y in 2009. January-February 2010 also saw a sharp 25.6 percent y-o-y increase in sales, driven by an increase in local demand as well as a 68.5 percent y-o-y rise in exports. Credit Suisse named Orascom Construction Industries, El Sewedy Cables and Saudi Yamama Cement Co as its preferred stocks in the segment. It said as infrastructure accounts for 60 percent of Orascom's construction backlog, it saw the company as a good way to get exposure in the sector. El Sewedy provides exposure to the power sector across the MENA region and “we expect strong 29 percent EPS growth for the company in 2010.” While it saw the oil and gas and power sectors continuing to dominate as major growth generators in the region, it said real estate had become less prominent. The cement sector should be a major beneficiary of such activity in the construction sector, but we are cautious on most GCC cement markets with the exception of Saudi Arabia. Yamama had a good start to the year and continues to outperform the Saudi cement market, with local cement deliveries up 60 percent in January, and reported this week an increase of 32 percent in February-on track to reach our forecast 2010 volume growth of 8 percent. Credit Suisse raised its price target on the “outperform”-rated stock to 285 Egyptian pounds from 277 Egyptian pounds. The brokerage said while El Sewedy provided exposure to the power sector across the region, Yamama continued to outperform the Saudi cement market after having a good start to the year. However, Credit Suisse said with the exception of Saudi Arabia, it remained cautious on the cement markets in most other countries in the Gulf Cooperation Council. The brokerage accordingly revised its price targets on several stocks. Demand in the UAE dropped substantially, by around 25 percent in 2009 to around17mt, and “we expect a further decline in 2010. At the same time, we expect capacity to reach 36mt in the UAE in 2010E, implying a utilization rate of less than 50 percent, but exports could help lift the utilization rate.” Union Cement exported 18 percent of production in 2009. Prices have been under pressure as a result of the low utilization rates: In January 2009, prices achieved in the UAE were in excess of AED340/t, but had dropped to below AED200/t by December 2009. The Cement Manufacturers Association in the UAE recently finalized a new cost structure for the cement producers in the UAE to support the falling cement prices. According to the new plan, cement in Abu Dhabi, Dubai and Northern Emirates will be priced at AED250/t, AED240/t and AED220/t, respectively. In Qatar, Qatar National Cement (the dominant player in Qatar) reported stable volumes in 2009 (+1 percent versus 2008) and prices remained at the same level of $72/ton. For 2010, Credit Suisse forecast a small 5 percent drop in cement prices and no imports by Qatar National Cement, as a new competitor, Gulf Holding, is due to start up operations during H1 2010. Despite expected capacity additions in 2010, but with no further capacity expansions planned in the country, Qatar will continue to have a shortage of cement supply. In Oman, Credit Suisse expects continued demand growth, but also expect competition resulting from increased imports from neighboring countries will likely keep a cap on prices. Oman's cement demand is forecast to increase from 4.9mtpa in 2010 to 6.5mtpa by 2013, compared with Oman's current capacity of 5.09mtpa, which ”we expect to increase to increase to c6.0mtpa by the middle of 2010.” The Kuwait Cabinet recently approved a development plan which budgets KD4.8 billion for FY2010/11 and KD30 billion ($104 billion) over the next 4 years, which involves setting up a number of projects on Public Private Partnerships (PPP) basis including KD15.6 billion spending on oil & gas projects. Other PPPs planned are a water treatment plant, a railway network, new cities, a port on Boubyan Island, a low cost housing company, and Silk City, a $77 billion business complex, which had previously been delayed. Such plans should boost demand for building materials as the largest producer of cement in Kuwait (current installed capacity of 2.1mtpa of grey cement and 170,000tpa of white cement), Kuwait Cement is likely to benefit from this expected increase in cement demand.
