Saudi Arabia cement capacity seen reaching 66Mta by 2015

Saudi Arabia cement capacity seen reaching 66Mta by 2015
Published: 11 June 2012

Tagged Under: Saudi Arabia 

Saudi Arabia's cement production capacity is expected to reach over 66Mta by 2015 from 47Mt this year, a report from Al Rajhi Capital said.

Saudi Arabia’s development plan is underpinning construction growth as building activity moved up a notch alongside existing projects such as King Abdullah and Jazan Economic Cities and hence, demand for cement increased accordingly. In 1Q12, national cement consumption reached 14.3Mt, up 16 per cent YoY.

"Construction activities have accelerated in 2011 and should continue in the same vein in 2012 and 2013. Consequently, the Saudi cement market has a positive undertone to it in terms of near to medium-term demand growth," said the report, dated late May.

"Total cement capacity has risen from 31Mt in 2008 to 47Mt currently and is expected to increase to over 66Mt by 2015."

Unsurprisingly, the combination of stronger demand and higher realisation prices has resulted in a bounty of profits for Saudi’s cement companies. Its listed cement producers, excluding the recently-inaugurated Hail Cement, posted sales revenues of US$807.5m, an increase of 34.7 per cent YoY in the first quarter of 2012, while net profits surged 23.6 per cent to US$364.5m during the first quarter. Gross margins edged up from 55 per cent to 55.5 per cent in 1Q12.

Looking ahead, market expansion in the kingdom is expected to continue apace. According to the Ninth Five-Year Development Plan (2009-14), the Saudi government will be spending over US$385bn on construction projects by the end of the planning horizon, including SAR100.5bn on the housing sector as 1m housing units are to be built. The transport sector will see an investment of SAR111bn, nearly doubling the previous plan’s allocation as 4200km of roads, four regional airports and railroad expansions are on the drawing board.

"Overall, we expect demand to rise gradually over the next three years from 41Mt in 2010 to 57Mt by 2015," Al Rajhi said. It predicted cement prices would cool during the month of Ramadan, between mid-July and mid-August, a time when demand usually slowed, but would overall remain stable for the rest of 2012, ending the year at SAR249/t (US$66.40).