A surge in production capacity in the short term could cause competition among Saudi Arabia’s cement companies and this could depress prices and affect their performance and creditors, a leading Saudi bank said yesterday.
The National Commercial Bank (NCB), Saudi Arabia’s largest bank, said cement sales in the Kingdom slowed down in the fourth quarter of 2008 but demand was higher throughout the year despite the current global crisis.
The government allocated SAR165bn for projects in the 2008 state budget, consuming nearly 40 per cent of the total planned expenditures worth SAR410bn.
The construction spree is set to continue in 2009 as the government has increased development outlays by another 36 per cent to SAR225bn in the 2009 state budget. This move will tend to accelerate demand for cement and related materials.
New plants coming on stream in the world’s largest oil exporter are expected to sharply boost cement production and this would create a large surplus capacity within two years although demand will remain strong, NCB said.
In a study on the Saudi cement sector sent to Emirates Business, NCB said cement sales stood at around 23Mt during the first nine months of 2008, consuming about 90 per cent of the total domestic production.
The country’s cement production surpassed total sales that resulted in 169 per cent increase in clinker inventory to the level of 2.8Mt and cement inventory of around 113,000t by end of September 2008, it said.
On the domestic front, despite weak demand growth seen during the first nine month of 2008, the study said it expected cement sales within the Kingdom to increase by 13.7 per cent to 30.5Mt for the entire 2008.
Overall cement sales (including exports) by the 13 Saudi manufacturers were projected to reach 33.9Mt in 2008, compared with 30.34Mt in 2007, an increase of nearly 11.7 per cent.
"Our medium-term overall cement demand-supply outlook demonstrates that if all the projects presently under implementation were accomplished on time by 2010, domestic market demand for cement would have to grow by 80 per cent to absorb the entire capacity being installed between 2008 and 2010. However, this demand growth scenario seems not possible to achieve within the stipulated time frame as many of the mega projects are at their early stages of preparatory developments...but cement demand will pick up rapidly once building activities related to civil-work commence at a top gear after 2010," NCB said. "As per our projections, the Kingdom’s domestic consumption of cement is forecast to reach 37Mt by 2010 in relation to the available operative design capacity of 54Mt, thus leaving a surplus capacity of around 17Mt, and pointing towards a capacity overhang."
According to the study, if the domestic consumption were to grow nearly 20 per cent per annum between 2007 and 2010, the Kingdom’s market demand will be around 46Mt, which would still leave a sizable 8Mt surplus capacity available for exports.