Arkan Building Materials, the construction industry trader listed on the Abu Dhabi Securities Exchange, is poised to pump Dh100 million (US$27.2m) into the construction of a new manufacturing plant, despite the recent decline in the local building industry.
The project, known as Arkan Dry Mortar, is a 57,000 square metre production facility in Al Mafraq for pre-mixed mortars, and is the company's first in the Emirates.
Arkan said the project was expected to be fully operational by the end of next year, with a production capacity of 1,000 tonnes per day.
"We are certain that demand will continue to increase over the coming years," said Saeed al Mutawa al Dhaheri, the vice president of projects at Arkan.
"We are increasing capacity and ensuring the right product mix to serve the needs of the region for the coming decades," he said.
The project is in line with Arkan's expansion plans in the dry mortar products sector.
But analysts have criticised the timing of the venture.
"Now is not a great time to invest Ö or expand in the cement business by opening new lines as we are already in an excess supply situation," said Hettish Kumar, a senior financial analyst at Global Investment House in Kuwait.
The price and demand for building materials have declined sharply since late 2008, when many companies started to shelve plans.
The price of cement has hit troughs last experienced in 2003 of about Dh160 per tonne. At the end of September it was Dh190 per tonne, after peaking at of Dh336.40 per tonne in 2008.
Arkan has enjoyed a share price rise in the past month. The stock has gained 66 per cent to Dh2.07 per share since the middle of last month.
"The only reason the stocks are up is that all real estate companies are trading below their book value so they are very cheap," said Mr Kumar. "If you look at real estate companies on the market in the past month, they have picked up almost 100 per cent."
The company's fortunes are forecast to improve as the number of businesses in the cement and blocks sector dwindles.
"Since there aren't many players in this business currently in the UAE, we expect this venture to pay off good dividends to Arkan," he said.
Arkan Dry Mortar's product range will include machine-applied plasters and renders, tile mortars and automatic shrink-wrapping.