GulfMerger research identifies opportunities for regional cement industry consolidation

As regional over-capacity becomes evident by 2009/2010, local and regional consolidation among cement producers or importers are likely to move ahead to create significant value through economies of scale from consolidated market share and buying power, as well as from cost savings from business streamlining.

In particular, cement import businesses in Kuwait present attractive acquisition opportunities for regional cement manufacturers. They are fully owned by the private sector and control in excess of 45% of local market consumption. As a result, they can provide regional cement producers with significant export capabilities into the GCC's third largest cement market after Saudi Arabia consuming 25 million tons and the United Arab Emirates consuming 15 million tons.

The fundamentals for cement importers in Kuwait are strong as cement consumptions continues to expand. Research on cement consumption in Kuwait reveals that consumption doubled from 2.3 million tons in 2000 to an estimated 4.6 million tons in 2006. GulfMerger forecasts put cement consumption at over 7 million tons by 2011, based on a population growing from 3 million inhabitants in 2005 to over 4 million inhabitants by 2011 and continued strength in oil prices. Cement consumption per capita has grown from 1,000 Kilograms per capita in 2000 to 1,500 Kilograms in 2005 and is expected to expand to 1,700 Kilograms by 2011.

This will be driven by over KD30 billion worth of infrastructure and construction projects expected to be implemented in the next five years in Kuwait. Key projects expected to contribute to cement consumption include the development of new townhouses, expansion of the road network and the replacement of old government buildings. The forecast does not assume the development of Silk City, which alone would have the strongest positive impact on cement, increasing cement consumption well above 9 million tons by 2011.

Yann Pavie, Chief Executive Officer of GulfMerger, said; 'We are clearly moving up a strong cement consumption cycle that will particularly benefit cement importers and will see cement consumption grow to unprecedented levels. Collectively, with over-capacity being built up in neighboring markets, Kuwait's cement manufacturer and importers are likely to consider broader strategic alternatives than they currently have done, including mergers and acquisitions or strategic partnerships. This will give rise to stronger regional players.'