Doing business in turbulent times

From a certain perspective it seems that many Middle Eastern nations are in a race against time. The coming year could be crucial in shaping the region’s medium-term future. If governments are successful in their responses to discontent, then the short, medium and long-term economic future continues to be bright. If not, then as the IMF recently commented, “the unfolding turmoil in the region poses downside risks to the outlook”.

With the Middle East and North Africa producing over a third of the world’s oil, should political turmoil seriously impact the region’s main oil producers, the impact on the global economy could be huge. Barring such calamities, the future of the main Middle Eastern economies and the market for cranes looks bright. With high oil prices bolstering their coffers, the leading oil producers have an opportunity to develop infrastructure and traditional industries as well as transition to more broadly-based economies, improving the living standards and skills of their populations — thus addressing underlying social issues. The money is there; in January Saudi Arabia’s net foreign assets reached a record high of SAR1.67trn ($445bn), up nearly 9% on 2010. But time is the enemy.

Most Middle Eastern economies are acknowledged to have negotiated the 2008 financial crisis very well, displaying that they had learnt lessons from the 1980s downturn. After the 2009 recession, significant increases in GDP were recorded throughout the region (See Table) and forecasts made, prior to the current unrest, described robust medium-term growth. Saudi Arabia’s economy is forecast to grow by 3.9% in 2011, but with oil prices at the current level there seems to be significant up-side potential. For the third consecutive year the Saudi government has outlined a record budget, with spending outlined at SAR580bn ($154bn) for 2011. Residential construction is a big issue and has the potential to lead to an explosion in tower and mobile crane demand that could outstrip the Dubai boom. In March, King Abdullah unveiled benefits for Saudis worth $37bn, $15bn of which is to help his people get housing loans and relieve the country’s chronic housing shortage. It’s estimated Saudi Arabia needs 2 million houses to be built by 2014 to keep up with a population that has quadrupled over the last 40 years.

Other governments, including Jordan and Yemen, are offering concessions to quell public discontent. Kuwait has stepped up to the plate with several massive housing projects including the 36,000 house $6.3bn Khairan Project, the 5,000 house $5bn Sabah Al Ahmad Future City Project and the 18,000 house $3bn Mutlaa Project. These are part of the nation’s 2010-2014 plan involving 100 projects valued at $130bn. Similarly, over the next five years Qatar plans to invest $150bn in 200 construction projects.

While Dubai’s investment in creating a non-oil based economy may seem to have hit a wall, it appears the Emirate’s economy has normalised and is poised for a return to growth. It is estimated that the UAE’s nonoil economy grew by 2.1% in 2010 and seems on track to grow by 3.3% this year. The improvements in the non-oil economy reflect strong tourism, logistics and trade in Dubai, and large public investments in Abu Dhabi. As the region’s second largest economy after Saudi Arabia, the UAE is also benefiting from high oil prices and low interest rates. Following a contraction in 2009, the UAE’s economy bounced back in 2010 with growth estimated at 3.2%.

The long-debated need for economic and industrial diversification, so emphatically pursued in Dubai, may now be starting to take root on a broader, more sustainable footing. London-based Bloomberg New Energy Finance (BNEF) has concluded that within a couple of decades solar energy could displace oil in the Gulf Region. BNEF’s believes that Saudi Arabia, Kuwait and the UAE could benefit more from selling their oil than using it to generate discounted electricity. If solar really takes off in the Middle East it could lead to a boom in the sale of small self-erectors, knuckle booms and boom trucks.

‘Green’ energy consumption was up 5.3% in MENA in 2010. Abu Dhabi has confirmed plans to have 7% of its energy needs provided by renewables by 2020. Arabian Construction Company (ACC) was recently awarded a $204m contract for work on Abu Dhabi’s carbon-neutral Masdar City project. Meanwhile, Hashim Bin Abdullah Yamani, president of King Abdullah City for Atomic and Renewable Energy (KA-CARE) recently stated that, “Saudi Arabia has decided to make use of alternative energy resources such as atomic energy, solar energy, geothermal energy and wind energy”.

Near-term, Saudi Arabia’s power needs are forecast to rise at a rate of 8% per annum, and triple over the next 15-20 years from today’s annual usage of 40 gigawatts. Region-wide, Siemens, ABB Ltd and Alstrom are pursuing opportunities as governments add infrastructure.

The oil and gas sector is not being overlooked. In 2009 the world’s largest oil company, Saudi Aramco, completed work on its largest ever capital programme, worth $100bn . Now Aramco and petrochemical producer Saudi Basic Industries Corp (Sabic) plan to invest a further $100bn in hydrocarbon projects by the end of 2015. Aramco – which is also one of the region’s largest crane owners with over 300 mobile crane of which more than 250 are Groves - has confirmed plans to spend $70.1bn on oil-related assets including $19.8bn to develop new sources of crude and keep output at current levels. Jointly, Aramco and Sabic will invest $50.3bn to expand refining capacity and develop petrochemical projects.

All of this investment means crane work. But naturally building power plants, substations, oil and petrochemical facilities, apartment blocks, etc also generates massive spending on civil engineering on transportation infrastructure, utilities and public works. And in both rail and port development, the investments are huge. To date, announced railway projects are valued at $106.2bn.

At the end of March Abu Dhabi Ports Co. (ADPC) awarded its third major crane contract for Khalifa Port, planned to be one of the largest in the world. The latest crane contract, worth AED193m ($52.4m), was awarded to China’s ZPMC for six Super Post Panamax ship-to-shore cranes. This follows recent contracts awarded since last November to Terex for 20 Terex-Noell SC 624E diesel-electric one-over-one straddle carriers valued at AED84m ($22.9m) and to Konecranes for 30 automated stacking cranes valued at AED430m ($117m).

As has been the case for some forty years, Turkish contractors remain a major force in the Middle East. The ability of these contractors to compete with their international rivals depends not just on price, but quality and on-time completions. In the more inhospitable regions, sophisticated product support remains a challenge for all equipment suppliers and for many Turkish international contractors have come to rely upon Terex’s Turkish distributor DAS Otomotive.

DAS has established strong relationships with leading contractors such as ENKA, Gama and Tekfen that have a significant footprint through the Middle East, Central Asia and Eastern Europe. DAS have over a dozen service technicians provides local support to its customers even in very remote regions where support is normally poor-to-nonexistant. Managing Director Kerim Basakinci says that under its “CARE” Scheme, DAS is providing free-of-charge inspection of cranes at its customer’s jobsites from Azerbaijan to Morocco. “We recently sold a fleet of Terex cranes to the heavy crane division of SOCAR (the State Oil Company of Azerbaijan) for use by Tefken. They purchased three Terex- Bendini 60t A600s RTs, a 30t RC 30 RT, a 160t AC 160 and 250t AC 250 all terrain and five Terex-Comedil Towers. This year we expect to sell over 100 new cranes, and we have already passed 50% of our target in the first quarter.”

With the recent downturn impacting the domestic workload of contractors and equipment manufacturers in North America, Europe and Japan, the world has rushed to the emerging markets, causing even-more intense price competition. Middle East crane demand has yet to recover to anything approaching prerecession demand. While the tumble in demand in 2009 impacted all suppliers, numerically it was the Chinese suppliers who took the biggest hit with sales of their small, low-cost truck cranes and small-tomid size crawler cranes dipping dramatically. In 2008 the only strong-selling non-Chinese truck crane was the highly-popular 55t Tadano GT 550EX which accounted for approximately 50% of all non- Chinese truck crane sales of all sizes. Of the Chinese suppliers, XCMG was truly dominant in the truck crane field with over 70% of exports, followed by Zoomlion with a share of almost 25%. In the crawler crane arena Sany was China’s top exporter with some 36% of exports followed by FUWA with 32%.

Looking at the 2010 statistics, it’s predictable that the sales of new cranes in these mainstream categories would be remain weak, given the large fleet of cranes lying idle in most regional markets. Of course tower crane sales have been especially hard hit with utilization rates in many markets, especially Dubai, now very low. Last year less than 500 new tower cranes were exported directly to the Middle East by European manufacturers - with all but a handful of these being top-slewers.

Utilization is improving but has some way to go. Of course this is not such a problem for larger-sized mobile cranes where the local population is quite small.

Certainly sales of second-hand cranes are filling some of the demand but many of the leading regional crane rental companies prefer to offer their customers the quality and assurance of new cranes.

A recent example was Liebherr’s sale of the first 1,200t capacity LTM 11200-9.1 in Saudi Arabia to Arabian Consolidated Trading based in Jubail. Meanwhile Saudi’s Awad Bin Quraya recently ordered nine Liebherr All Terrains of between 50 and 500t capacity for delievery between April and December this year. Bin Quraya now has a fleet of some 220 mobile cranes that includes large numbers of 50t Tadano truck cranes and rough terrains, Hitachi crawler cranes, Liebherr and Grove all terrains.

Al-Messallam of Riyadh recently ordered a 450t GMK 7450 as well as two of the new long-boom GMK 6300L 300t ATs. Similarly Oman-based heavy-lift specialist Sinan Heavy Lift Lift selected the GMK 7450 to join an existing fleet including two 300t GMK 6300s, two 220t GMK 5220s, a 100t GMK 4100L and several RTs topping out with the 120t RT 9130E. All these units were sold and are supported by local Grove distributor, Arabian Crane Services who has had some success with National trucks.

For many years now the rough terrain cranes of Terex’s former Bendini arm have sold very well throughout the Middle East, not least by Turkey’s DAS Otomotive. The new 90t (100USt) RT 100 has already won success in Kuwait along with a fleet of 60t Terex A 600s.

Cargotec’s Hiab introduced its model 310L built for the Saudi and Qatar markets to deliver bricks to 4- and 5-storey apartment buildings. Last year Hiab was also successful in winning an order for 95 loaders and cargo-bodies for the Ministry of Electricity, Iraq.

Similarly innovative has been Manitex’ approach to this market. Thanks to Abu Dhabi-based Darwish Bin Ahmed & Sons Group, who represent Manitex throughout the UAE and Saudi, Manitex has achieved a level of success with boom trucks never before accomplished in the Middle East. MAN distributor Darwish worked with Manitex to engineer the mounting of the cranes to allow it to furnish full product support for the entire boom truck. The 40USt (36t) Manitex model 40100, 30USt 30100C and specialized 28USt Model 2892 Wireline model are all mounted on 6x6 wheel drive MAN trucks with super single on-off-road tyres. Darwish has validated the suitability of the concept with purchases of almost 60 units of six different models between December 2008 and the end of 2010.

Another niche that is being exploited by Unic distributor GGR is the growing demand for minicrawlers. In 2009 GGR established a joint-venture, GGR Gulf, in partnership with Orientals Specialist Lifting, which has branches in the UAE, Jordan and Saudi. To date the company has retailed five units in Dubai including a top-of-the line model 705 offering 6.0t capacity at 3m and a maximum boom length of 19.2m. The company’s rental fleet has proven a real success with ten units now available and only one of these currently off-rent. By far the most popular model is the Unic 295 offering 2.9t capacity @ 1.4m radius and boom lengths up to 8.65m. While most of the Unics have been employed on high-rise glass handling applications, the range of applications is gradually expanding as the potential of these small cranes becomes appreciated.

While the upper end of the scale may not be strong, opportunities are opening up. Kobelco’s Mike Maruo sees the Middle East crawler crane market improving by about 10% this year and with real recovery starting at the end of 2011 or early in 2012. Enquiry levels especially from Saudi and Abu Dhabi have picked up but the pace is still slow. Maruo expects Middle Eastern construction of new industrial plants to peak in 2013-14, providing the next major driver to crawler sales.

Following the sale of a 750t capacity LR 1750 crawler crane to the Bahrain-based Sarens-Naas joint venture, at the end of last year a 350t LR 1350 joined the fleet of Amman, Jordan-based Abdullah Al Jiburi General Contracting Co for use on the Basra Sports Complex project in Iraq. And while Al-Jaber’s 3,200t capacity Terex CC 8800-1 TWIN currently remains the largest crane owned by a local company, it will soon be joined in the Emirates by ALE’s 4,300t capacity SK.190 crane. ALE recently added a 1,600t CC 8800-1 to bridge the gap between its Gottwald MK 1500 and SK.190, of which a second unit is now in build. The UK-based company’s executive director Richard Peckover says that when the SK190 completes its current assignment in Houston, TX it will head to the UAE. Its first job will be to lift two 1,450t, 70m long, 10m diameter pieces and it will then move to a longer-term project working with ALE’s purpose-built ALE 300 barge that will transport pieces for the SK.190 to lift.

Clearly the future of the Middle East as a crane market offers fabulous potential for cranes large and small. Let us hope that the politicians don’t de-rail it.