Saudi cement sector seen recovering

Saudi cement sector seen recovering
Published: 25 October 2010

A recovery in the Saudi construction sector due to sustained high public spending and better economic conditions will give a boost to cement producers in Saudi Arabia following a slowdown, according to a study by National Commercial Bank (NCB).

The Gulf Kingdom’s domestic market for cement has been well supplied by the 13 local factories during the first nine months of this year, with total production growing by 13.9 per cent to 32.2Mt as one more factory, Al-Jouf Cement came on-stream with an output of  around 180,000t last month, said the NCB study.

Of total production, the domestic market bought 96.2 per cent (30.96Mt) while foreign markets received about 3.5 per cent (1.1Mt), and the remainder was transferred to inventory with stock levels closing at 807,000t by the end of September, the study said.

With emerging sluggish demand on slowing construction activities in the home market, domestic cement prices started weakening on a "price war-like" campaign, exports were resumed by five factories to a combined total of 1.75Mt, including 658,000t of clinker.

Its figures showed that on a monthly basis, the net-earnings of the eight listed cement companies shrank by 16 per cent year-on-year, from SR102.65 per tonne of cement sold in local and foreign markets last year to SR 86.22.

"Thus, the overall net profit of the eight listed companies dropped by 2.6 per cent to SR2821m in the first nine months of 2010 over SR2897m in the same period of last year," said NCB, the largest bank in Saudi Arabia.

"Investors responded in a subdued fashion to listed cement companies, causing a two per cent drop in their stock prices so far this year. As the construction sector recovers, the demand for cement will start to pick up in a paced fashion."

The study also expected high capital expenditure approved by the government within its 2010 budget to keep cement demand robust and reduce inventory.