JEDDAH: Saudi Cable Co. is spending SR557 million ($149 million) to more than double its output capacity by the end of 2010 to improve its cost efficiency and gear up for a recovery in demand in 2011.
“We started in 2007 and we are about 75 percent done ... by the end of this year (output capacity) will be up to 100,000 tons of cables,” Managing Director Waheeb Linjawi told Reuters in an interview. “We are going to increase our capacity to lower the cost per unit,” he said.
The expansion has already raised Saudi Cable’s production capacity to 75,000 tons from 45,000 tons in 2009, he said.
Linjawi said the extra production would be exported mainly to Gulf countries. “The market is there ... We expanded on the basis that demand from Gulf Cooperation Council countries is huge but we are also targeting other countries in the region.”
There is also a domestic rationale for the firm to raise output, since the Saudi government is currently spending SR1,500 billion ($400 billion) in the five years to end-2013 on infrastructure and development projects.
“Demand is now picking up again ... I anticipate a brighter future because of the huge infrastructure and housing projects and anticipate level of demand will exceed the height of 2008 by 2011,” Linjawi said.
State-owned Saudi Industrial Development Fund (SIDF) provided 29 percent of the financing for the expansion and the remainder came from local banks, credit lines from equipment makers and the firm’s own resources.
Sales in 2009 were hurt by order cancellations after the global slowdown reduced prices of copper, the main production input. Some clients canceled orders they made before copper prices declined, Linjawi said.
“Because of the uncertainty in the financial crisis some of the projects were delayed or canceled and that is what contributed to the lower (sales) volumes for the first three quarters (of 2009),” he said.
The price of a ton of copper fell from $8,000 to $3,000 in 2008, but it has gradually recovered to $7,000 by end-2009.
Third-quarter net profit fell 78 percent to SR20.1 million — the lowest quarterly earnings since a SR14.2 million net loss its made in the fourth quarter of 2008 — after sales for the third quarter declined by almost half their level a year earlier.
Sales in the nine months to the end of September 2009 stood at SR1.85 billion, down by almost a third from the same period in 2008.
Linjawi declined to give forecasts for the company’s earnings for the fourth quarter or for all of 2009. He noted however that the financial crisis hit both copper prices and demand last year.
“For 2010 we feel the demand is there but the competition is fierce,” Linjawi said.
The company says it is Saudi Arabia’s second biggest maker of cables after unlisted Riyadh Cables Co. In August, Saudi Cable bought a 79-percent stake in Turkish electronic equipment maker Elimsan for SR123.75 million ($33 million), part of its strategy to consolidate and diversify its products.