Boom time for GCC power cable industry
Increased demand for electric power in the GCC is set to drive the regional utility cable industry into an ostensibly tenable future. But how is the industry primed to meet changing demand patterns, a reflection of a more intuitive market landscape?
The Dh6.3 billion GCC utility cable industry is in the midst of a historic transformation. A paradigm shift in conventional business drivers is stirring up new trends as vertically integrated utility cable manufacturers size-up a fitting approach to swim with the tide.
Industry players looking to create their mark in the future cable marketplace are invariably shaping up more diverse corporate structures and product offerings.
While some will continue to operate in narrow niches, the future of the region’s utility cable industry will require total devotion on quality and competence at a grand scale.
“The market landscape is evolving at a pace never witnessed before,” says Andrew Shaw, Managing Director at DUCAB, a leading manufacturer for utility cables and cabling products in the Middle East.
“Some of the old practices will no longer be tenable in a marketplace now headed for real competition.”
The GCC utility cable market, dominated by UAE and Saudi Arabia, is well-placed on an assured growth trajectory, driven by unprecedented demand for increased power generation to cater for a growing population and a buoyant construction sector.
A recent report by Frost & Sullivan projects the GCC market for power cables to reach nearly $9 billion in revenues, based on assumptions relating to copper and other raw material prices.
The past few years have witnessed an unparalleled demand in power cables across the GCC as new power projects begin to take shape. The double digit demand growth cuts across Low Voltage (LV), Medium Voltage (MV), High Voltage (HV), and Extra High Voltage (EHV) cables.
Currently, total GCC investments in power projects are estimated at $150 billion, with nearly $94 billion into power generation projects, $19.2 billion into transmission and the rest in distribution.
The GCC power grid project is expected to connect all member countries through overhead EHV cables, while the ongoing regional real estate construction boom is driving demand for LV cables, which enjoy the largest share of the market.
The power cable market space, traditionally occupied by cable manufacturers such as UAE’s DUCAB and Saudi Arabia’s Riyadh Cables, Jeddah cables and Saudi Cables is fast being encroached upon by new players, keen on flaring up their share.
The latest market entrants include companies such as Bahra Cables, Al Fanar, RESCAB, QICC, El Sewedy in Saudi Arabia and Qatar, and Power Plus who are capitalising on their close business links with end users.
Bahra Cables has strong links downstream to key end-users Saudi Bin Ladin Group and Electric House, while Al Fanar has a long established distribution network in Saudi Arabia and a sister company engaged in EPC contracting.
Frost & Sullivan however cautions about changing industry dynamics as new demand patterns increasingly align with global trends on efficiency and sustainability, along with a vivid call for value addition that accentuates customer service and after sales services.
“Everyone will now focus on staying relevant to prevailing market needs. To achieve this, traditional players will have to dominate each segment, acquire different core capabilities and learn best international practices that can be replicated in the region,” says Shaw.
In a wide-ranging interview with Utilities Middle East on DUCAB and its place in the future of the region’s utility cable industry, Shaw is upbeat about his company’s ability to promptly align itself with any future course that the industry may choose to take.
“The opportunities are boundless for those who can organise the overall value chain for consumers. It is a game that we have mastered,” says Shaw.
And to stay on top of this game, diversification is an important aspect of business.
In 2017, DUCAB will for the first time start manufacturing high voltage and extra high voltage overhead cables to help reduce overdependence on imported products.
Last year, with an investment of Dh220 million for buildings, machinery and infrastructure, DUCAB set up an aluminium manufacturing plant at Khalifa Industrial Zone Abu Dhabi (Kizad) under a joint-venture with SENAAT.
The joint venture, DUCAB Aluminium Company (DAC), will develop a 50,000tpa aluminium rod mill, of which 16,000tpa will be converted on-site into finished overhead conductors.
Production of aluminium rod is expected to commence mid next year to address the shifting trend towards a preference for aluminium conductor over copper, mainly driven by Saudi Arabia, DUCAB’s main market for cables.
“Although aluminium occupies a larger space, it is very cheap compared to copper. We are seeing more demand for aluminium conductors in Saudi Arabia and we believe that this is going to be replicated in UAE and other countries in the GCC where copper is still dominant,” says Shaw.
DUCAB also hopes to take part in the GCC interconnection power grid once it starts rolling out its overhead cables onto the market.
The growing market for solar in the region is unlocking more prospects for diversification within the cable manufacturing industry with more companies now focusing on specialised cables.
The MENA (Middle East and North Africa) region could see more than $50 billion worth of investments made in its solar power sector by 2020 as regional governments increasingly push for the adoption of clean energy, according to a joint report by Middle East Solar Industry Association (MESIA) and Meed Insights.
Saudi Arabia is the largest solar power market in the region with plans to install 23,900MW of renewable energy by 2020.
In UAE, projects such as the Mohammed Bin Rashid Solar Park in Dubai, inaugurated in 2013, and Masdar’s Shams 1 in Abu Dhabi are key factors in influencing the current optimism within the power cable industry. DUCAB is supplying MV, LV power and control and grounding cables for the two projects.
Similarly, DUCAB has supplied locally produced 60 year non-class 1E power cables for the four reactors at the $20bn Barakah nuclear facility, with each reactor expected to produce 1400MW of electricity by the year 2020.
With the future of power generation in the GCC expected to be heavily dependent on nuclear, cable manufacturers are gaining a footprint in making cables specialised for nuclear projects.
“These flagship projects not only widen business prospects but are also helping to standardise the industry to international levels,” says Shaw.
“For example, DUCAB is now the first cable manufacturer in the world to produce cables with a 60 year life span, to meet the requirements set by the Emirates Nuclear Energy Corporation (ENEC). It is a feat that will enable us win more business in similar projects in the region and beyond.”
“Quality is soon going to be an important differentiator in the industry. There is now a growing tendency for new projects to set stricter standards. This is something that is going to transform the entire industry.”
Quality improvements and product diversification will further enable cable manufacturers to gain traction in fresh markets beyond the GCC.
In its latest report, Frost & Sullivan says that, increasing expenditure on infrastructure in some key neighbouring countries could present very viable markets for GCC cable producers to mitigate the sluggishness resulting from low oil and gas prices.
It points out countries such as Egypt, Iraq, Iran and a number of emerging African economies as viable markets for GCC power cable manufacturers.
“Currently, GCC producers have targeted these countries, but in an ad-hoc and opportunistic manner in most situations. We recommend a focused approach while catering to these markets,” says the report.
Last year, DUCAB acquired the UK-based AEI Cables to start manufacturing specialist cables geared towards more niche markets, especially within emerging economies on the African continent to expand its current export market consisting of countries such as Hong Kong, UK and Australia.
The manufacturer has already made business inroads in Nigeria, Africa’s largest economy and it is currently engaging the East African market, including Kenya, another economic giant on the African continent.
However, these efforts will yield no significant results without clearly laid out strategies geared towards customer retention focused on improved pre and post sales services.
“The new practice is to offer more than just a factory. There is a growing tendency among established players to offer improved delivery and more storage options, which we have been doing for some time now,” says Shaw.
He says that DUCAB has pioneered a practice in the regional cable industry that allows their customers to design their own cables to suit their needs.
“We offer our customers a chance to come to our factories to witness the cables being manufactured and also give them an option to customise them according to the projects that they are intended for,” says Shaw.
Customer-initiated linkages are expected to define the industry’s future by cementing the existing bond between manufacturers and customers.
For instance, manufacturers are now encouraging graduate trainees from partnering companies to come to their factories and see the cable production process, hoping that this will aid them in creating designs for future utility cables that meet the necessary technical requirements.
But most importantly, this initiative carries the potential to reinvigorate the business linkage between manufacturers and their customers.
Some companies such as DUCAB are even going an extra mile to invite customers to attend their in-house training sessions to allow lateral knowledge sharing for any future projects.
Industry experts agree that the regional cable industry is already into a crucial phase in its lifecycle, where capability, proximity, quality and customer-centric initiatives will be the main provisions for business continuity.
The issue, however, is not so much whether to choose, but when.