Cement sales in Saudi Arabia are likely to rise 19 per cent in 2010 but prices are expected to drop, dragging profit margins down as new entrants, combined with a partial export ban, increase market saturation, NCB Capital said.
In a report, NCB Capital, the investment arm of Saudi Arabia’s biggest lender, National Commercial Bank said: "We expect gross margins of 53.8 per cent in 2010 compared to 54.3 per cent in 2009."
Cement sales are expected to reach 44Mt this year, the report said, as the country is undertaking multi-billion dollar infrastructure projects.
It added: "Domestic cement sales volumes increased by 23 percent in 2009 and we expect this to expand a further 19 percent in 2010."
The report said: "We expect the ongoing excess supply situation to lead to lower pricing and ultimately to margin pressure for the incumbent cement companies ... the incumbents lost 20 percent market share through 2008 and 2009 as new companies entered the market and we expect this to continue."
Production capacity is expected to increase to 51Mt this year as three new cement companies are expected to start operation.
NCB Capital said: "We believe capacity in the Saudi cement sector will continue to exceed demand. This concern is exacerbated by the ongoing conditional export ban which we believe is unlikely to be completely lifted in the short-term."
In 2008, the government imposed an export ban to curb cement prices.
Source: The Saudi Gazette 2010