New cement plants ease pressure on Saudi supply

New cement plants ease pressure on Saudi supply
Published: 01 August 2008

Expansions in 2007 and the completion of three new projects in the first half of 2008 have eased pressure on cement supply in Saudi Arabia despite a surge in domestic demand because of a construction boom, a leading Saudi bank said yesterday.

The Gulf Kingdom’s 11 cement plants produced nearly 9.38Mt in the first half of this year, an increase of nearly 16.9 per cent over the same period of 2007, the National Commercial Bank said in a study, sent to Emirates Business.

"The market for cement had been well supplied by 11 domestic factories during the first half of 2008, with six months’ total production reaching 9.38Mt and growing at 16.9 per cent in the first half over the same period of last year," it said.

"Three new cement factories namely Riyadh, Najran, and Madinah came on production stream with combined production of 1.2Mt during the first half, easing tight supply situation that was persisting since 2006." Citing official figures, it said total cement sales to the domestic market increased by 13 per cent to 8.3Mt in the first half, consuming 88.6 per cent of the total domestic production, while higher exports orders of 2.1Mt were met by drawing down inventories.

On logistic demand feebleness, Yanbu cement plant’s domestic sales decreased by nearly 24 per cent in the first half, followed by Qassim’s 15.2 per cent down, and Arabian’s cement by around 2.4 per cent, the report said.

"The eight per cent net-earnings growth reported by the eight listed companies in the first half demonstrates stable pricing environment with rising output that should rebuild investors’ confidence for selective stock buying."

According to the study, the Saudi cement market recorded high growth in 2007 and is expected to surge this year due to the construction boom. It said domestic consumption grew by nearly 8.4 per cent to 26.8Mt (88.5 per cent of production), while cement exports increased by 55.8 per cent to 3.5Mt (11.5 per cent) in 2007, on higher production capacities.

"Investors should be able to rebuild their confidence in cement this year with rising output and a sustained growth in net-earnings."

Like other Gulf oil producers, Saudi Arabia is experiencing an economic and construction boom, fuelled by a surge in crude prices. Projects worth more than $ 1 trillion (Dh3.67trn) are expected to be completed in the GCC in the next five years.

In its bulletin last month, NCB estimated construction projects to be carried out in Saudi Arabia alone in the next 10 years at more than $400bn, an average $40bn a year. It said the projects are needed to face a surge in demand, which "is unleashing the biggest building boom yet seen in Saudi Arabia."

According to the Kuwaiti-based Global Investment House, the boom has largely benefited cement firms in Saudi, allowing them to pump at maximum capacity and net their highest profits.

"The construction boom has caused the cement market to tighten in 2006 and 2007. In early 2007 the government intervened to prevent excessive price rises. The aggregate profit of eight listed cement companies in Saudi Arabia soared by nearly 22 per cent to SR4.49bn n 2007 from SR3.68bn n 2006," the report said.