Aluminum a rod for Gulf cable makers

Mr Andrew Shaw MD of Ducab talks about how the company posted record sales but lower profits and the threats facing the cable manufacturing industry:

Q - You supply the building industry, so how did you fare during the downturn?

A - You might expect that we were the first to be hit but in fact in our industry the pain comes a little later. When it hit at the end of 2008 all our contracted customers were hit hard but after that initial shock 2009 continued reasonably well because there was a large executive order. Of course a lot of jobs got postponed or slowed down but a lot just finished, so when the crisis hit our volumes went down but we continued tracking on OK in 2009. In 2010 it really started to bite.

Q - You say that but yet you managed record sales last year. How did that happen?

A - We had record sales because we have two businesses: we have cables, which we did about AED 2.2 billion and we did AED 1.4 billion in copper rod. A lot of our sales, our top line growth, came from copper rod. It is the raw material for cable, so we make it for ourselves but we also sell it out to other cable makers and other copper users. The price of copper has been very high. You make the sales because if you have to buy copper, you have to buy copper.

Q - If the price of copper stays high long term, what could it mean for the cable manufacturing industry?

A - The longer copper remains a very high price relative to aluminum then it may actually move the industry towards more aluminum cables. Now we can make aluminum cables. We already do a substantial quantity but we happen to have a copper rod plant just here, so we have an interest in promoting copper cables.

Q - How would you adapt your business if the industry moved towards aluminum?

A - The business would change shape. The cable would look the same, except it would be one size bigger because aluminum is not as good a conductor as copper. Aluminum is a cheaper metal, so it reduces the price of the cable. That would reduce our turnover. To achieve the same sort of sales numbers in dirham terms we would need to make a lot more cable.

Q - What other challenges do you face?

A - Our profitability has dropped quite dramatically and that profitability has dropped because the demand side has fallen away and we increased our capacity quite dramatically during the mid-2000s. We like many other Gulf cable makers, increased capacity so as a business what we're worried about is the reduction in margins because there's now more capacity than demand and in this sort of industry that pushes prices down.