Cement Firms’ Growth Slows On Saudi Ban

Cement Firms’ Growth Slows On Saudi Ban
Published: 11 September 2008

Saudi Arabia’s cement-export ban will continue to hit profits at the kingdom’s top cement companies this year after many saw their income growth slow in the second quarter, analysts said.

Saudi Arabia imposed a ban on exports of cement in June to alleviate supply bottlenecks amid a surge in demand both domestically and from neighboring countries. Before the ban, cement exports were on course for a record, with eight out of Saudi Arabia’s 11 cement companies exporting cement, compared with four in 2006.

The combined second-quarter net income of Saudi’s top seven cement companies rose 8.4% to $632.2 million, from $583.2 million a year earlier, according to Zawya.com data.

"The export ban, introduced in June, affected second-quarter net profit," Gasim Abdulkarim, a cement analyst at Saudi investment bank Jadwa Investment, told Zawya Dow Jones newswire. "If the ban remains in effect for too long it could have serious implications for the local industry, but we expect the government to step in before this occurs," he said.

Cement and clinker exports accounted for 2.3Mt, or 12.3%, of total production in the first half.

"The export ban will hit companies in the next quarter when they’ve increased their capacity in order to export," said a trader at Samba Capital Asset Management. "The big question is whether or not they will be able to sell their extra capacity to the local market," the trader said.

Those cement companies that exported the most in 2007 saw their profit hit hardest. Saudi Cement Co., which exported 1.1Mt in 2007, saw second-quarter net profit fall 3.6% to SAR92m (US$24.5m) from SAR95ms a year earlier, according to Zawya.com data.

Eastern Cement Co., which exported 1.1Mt in 2007, posted a 0.5% rise in second-quarter profit to SAR79m from SAR78m a year earlier.

Saudi cement companies with an installed capacity of more than 38Mt at the end of 2007 account for seven of the Gulf region’s top 10 cement companies.