Saudi: strong growth expected to continue

Saudi: strong growth expected to continue
23 September 2013

Cement sales in Saudi Arabia are expected to rise by 8.2 per cent this year and rise at a CAGR of 6.3 per cent, a recent report by NCB Capital forecasts. However, concerns are raised on capacity constraints and pressures on margins as local producers import clinker to meet booming demand. 

“We continue to expect a strong demand outlook for cement in Saudi Arabia in the coming few years. This is mainly due to the ongoing and new mega projects announced by the government, coupled with an increase in private sector activity,” Abdulelah Babgi, equity research analyst at NCB Capital.

While NCB believes that the demand outlook for the sector remains strong, it expects that importing clinker will only be a short-term solution and will compress margins due to insufficient subsidies.

 “Imports could lead to margin pressure due to insufficient government subsidies,” added Babgi. “On average, we have reduced our 2014 net margins by 63 bps due to the expected margin pressure as a result of cement imports.”

Moreover, it has also warned over the uncertainty of fuel supplies to planned expansions. “In the long term, the ability of the local firms to meet demand remains unclear due to the uncertainty over fuel supply to planned expansions,” Babgi stated.

NCB Capital believes overall earnings growth potential for most companies remains limited due to high utilisation rates and restrictions on prices.  “We remain neutral on the sector due to capacity constraints and concerns over margins compressing," he said.

Published under Cement News

Tagged Under: Consumption Saudi Arabia imports