Saudi Arabia’s domestic cement consumption is forecast to increase at a CAGR of 8.0 percent during 2010-15, and reach 60.6 million tons in 2015, AlJazira Capital said in its report on Saudi Cement Sector.
In 2012, the consumption is likely to increase 9.4 percent amid higher construction activity and robust GDP outlook .
The government’s stepped-up spending plans and concerted diversification program are fueling sustained investment in infrastructure. This, along with increasing private sector investment in industries and real estate is underpinning a massive construction boom in the country, the report noted.
With multi-billion dollar projects underway, the Kingdom has already taken over as the GCC’s leading construction market, even far ahead of the UAE. With a current construction projects backlog of nearly $602 billion, Saudi Arabia has surpassed the UAE (backlog of $410 billion) to become the largest construction market in the GCC, the report added. Moreover, it said the Kingdom’s average cement production cost per ton of $30.9 in 2010 was the lowest in the GCC.
Cement production cost per ton in Oman, the second most cost competitive country in the region, averaged $37.0. This is primarily because cement manufacturers in the Kingdom procure fuel at artificially low prices from the government and also capitalize on the availability of abundant raw materials (limestone).
Fuel and raw materials account for around 50-60 percent of production cost globally.
Consequently, the Saudi Arabian cement manufacturers enjoy gross margins in excess of 50 percent. In contrast, their GCC and international peers have average margins of less than 30 percent.
Oman is the only other GCC country that has high gross margins of around 45 percent.
Cement dispatches in the Kingdom rose to record levels. It grew nearly 13 percent YoY to 34.8 million tons during 9M 2011 due to buoyant construction activity.
Kuwait-based Global Investment House (Global) said in a separate report that cement prices in the GCC averaged around $64.9/ton in 2011, as compared to $68.3/ton enjoyed in 2010, a 4.9 percent decrease mainly due to decline in Kuwait, UAE and Oman where companies slashed prices to win contracts.
Saudi Arabia, Oman, UAE and Kuwait overturned the declining revenues in 2010 and all four countries reported increasing sales for 2011 except Qatar.
UAE which witnessed declining sales revenue since 2008, enjoyed a 5.9 percent increase in sales to reach $940.0 million.
Oman witnessed a 12.8 percent increase in sales revenue reaching $342.3 million, the second highest revenue in the Oman cement history. However in earning result Oman reported a 39.4 percent decrease in profits for the year 2011. Kuwait reported a 5.4 percent increase in revenues to reach $66.9 million and posted a 47.1 percent decrease in net profits as compared to 2010. Qatar was the only GCC country reporting declining sales and profits. Kingdom posted a healthy 22.6 percent increase in sales revenue and a 25.2 percent increase in net profits.
Saudi Arabia and Qatar witnessed slight increase in cement prices. On a CAGR basis during the period 2006-2011 average cement prices in GCC decreased 0.8 percent. Oman marked the largest decline of prices by 19.3 percent to reach $64.1/ton in 2011. Kuwait average realization prices reached $76.1/ton in 2011 as compared to $79.4/ton in 2010. On a CAGR basis, Kuwait cement prices increased 0.1 percent during the period 2006-2011. With major projects being implemented in Kuwait as a part of the development plan, cement prices in Kuwait are expected to increase going forward.
