SAUDI ARABIA: Saudi cement producers push for 20% export

Cement supply exceeds demand which is projected at 60 mln tonnes in 2016.

Saudi cement producers will meet government officials soon to discuss lifting the ban on their exports by around 20 per cent, a Saudi daily reported on Thursday.

The Gulf Kingdom’s cement companies will in turn ensure a two-month supply for the local market, the Arabic language Alyaum newspaper said, quoting Abdullah Ridwan, chairman of the construction and property committee at the Jeddah chamber of commerce and industry.

“The cement companies in the Kingdom are preparing to meet representatives from the commerce and industry ministry to discuss allowing them to export 20 per cent of their production……if the export is approved, the companies will be committed to supplying the local market with production for two months,” he said without specifying a date for the talks.

Ridwan said cement supply in the Saudi market is currently higher than demand, warning that some cement firms could suspend production if they are not allowed to export their surplus output.

“This is because demand is currently weak…if the companies are allowed to export that quantity, this will positively affect the market and their business,” he said.

The paper quoted a Saudi cement company executive as saying cement could be exported to the other Gulf Cooperation Council (GCC) members as well as Sudan and other African nations, Spain and Latin America.

“The cement companies in the Kingdom need to export because they have been adversely affected by the increase in domestic fuel prices…we will give guarantees to provide the local market with sufficient cement quantities in case the commerce and industry ministry agrees to partially lift the ban on exports, “ said Safar Dhafeer, CEO of Southern Province Cement Co.

He expected cement demand in Saudi Arabia, the largest Arab economy, to remain almost unchanged at around 60 million tonnes in 2016 compared with 2015.

SAUDI ARABIA: Saudi considering lifting export curbs on cement, steel

Nov 29 Saudi Arabia is considering lifting partial export bans on cement and steel to relieve oversupply in the local market, economic news website al-Eqtisadiah quoted a customs department official as saying on Sunday.

Saudi government bodies are studying whether to ease restrictions on cement and steel exports after local production doubled, exceeding the storage capacity of the kingdom's largest companies, customs department spokesman Essa al-Essa told Eqtisadiah without giving any timeframe for the decision.

Steel stocks have risen above 1.8 million tonnes, causing some factories to cut production by 50 percent and shut some smelters entirely, said the report, citing the chairman of the National Committee for the Steel Industry.

The Saudi government originally imposed a ban on cement exports in 2008 to push prices down and accommodate demand from large government-funded infrastructure projects, although some companies were allowed to export at prices lower than those in the local market. Steel exports have been similarly restricted.

New activity in the Saudi construction sector has slowed in recent months as a slump in oil prices has pushed the government to cut spending on non-essential projects; the industry may slow further if, as economists expect, more austerity measures are imposed next year.

SAUDI ARABIA: Yamama Cement and ThyssenKrupp sign $1.1 billion plant deal

Saudi Arabia's Yamama Cement Company has signed a 4.2 billion riyal ($1.12 billion) contract with Germany's ThyssenKrupp Industrial Solutions to build a new cement plant, the company said in a statement on Wednesday. 

The new plant will be built over 39 months 100 kilometres outside of Riyadh, with daily production capacity of 20,000 tonnes of clinker, or nodules ground to make cement, Saudi state news agency SPA reported from the signing ceremony. 

The source of funding and start date of the project will be announced later, the company said. 

Yamama Cement currently produces six million tonnes of clinker and 6.3 million tonnes of cement.

SAUDI ARABIA: Saudi cement firms begin to cut production to shore up prices

Cement production in Saudi Arabia declined by the steepest levels on record last month as producers sought to run down stocks in a bid to shore up ­prices.

In a report on the country’s cement market, the Saudi investment bank NCB Capital said that production of clinker (a raw form of cement) fell by 12 per cent year-on-year in May.

It said the country’s biggest producer, Saudi Cement, had started to cut production in a bid to support prices that had been falling in recent months, as companies in more remote regions began undercutting in busy cities such as Riyadh and Mecca.

The NCB Capital analyst Mohamed Tomalieh said the decline in production was a deliberate attempt to shore up prices rather than a response to current market conditions.

“We believe cutting production aims to control supply and price discounts,” he said.

The cut helped to bring clinker inventory levels down to 19.4 million tonnes – down from a record high of 21.4 million tonnes in December.

The kingdom’s cement mountain has been built up partly as a result of decrees issued by the late King Abdullah to make sure the country did not run out of supplies. A cement shortage in Mecca in 2012, where the redevelopment of the Grand Mosque was taking place, led to a black market trade and soaring ­prices.

In April 2013, the king set aside US$800 million to be spent on importing supplies and building kilns to boost capacity.

However, an amnesty and subsequent crackdown on illegal migrants later that year led to hundreds of thousands of workers leaving the kingdom, causing widespread project delays.

Demand has not kept pace with supply since.

Although cement sales increased by 6.9 per cent year-on-year, this was from a low base as last year’s figures were affected by the labour shortage.

Moreover, Samba Financial Group said in its latest Saudi country report that there are “signs of a slowdown in activity” in the kingdom, as it reins in capital investment in response to lower oil prices.

“This fits with our view that the government will contain capital spending this year and next, before relaxing its stance somewhat in the 2017-20 period as oil prices begin a more sustained recovery,” it said.

“Regulatory issues are also having an influence: any ­government project with a value over 100m Saudi riyals (Dh97.9m) now needs approval from the new economic and development council before ­proceeding.”

The property market has also slowed following the introduction of a 70 per cent loan-to-value lending limit on home loans late last year.

SAUDI ARABIA: Saudi cement producers want to export to Egypt

Saudi Arabia’s cement producers have again asked the government to lift a three-year-old ban on their exports so they can supply Egypt with six million tonnes of cement, the chairman of the Gulf Kingdom’s cement makers was quoted on Wednesday as saying.

“We are ready to export six million tonnes of our cement surplus to Egypt following the signing of large contracts between that country and global companies this week,” Jihad Al-Rasheed, chairman of the national cement committee in the council of Saudi chambers of commerce and industry, told the Saudi Arabic language daily Al-Riyadh.

He said it was time for Saudi authorities to lift the export ban after the emergence of “golden” opportunities for the country’s cement manufacturers to export their products to nearby Qatar which needs large quantities of building materials for the planned play fields and other sport facilities for the 2022 World Cup in Qatar.

He added that other key markets which need Saudi cement include Kuwait, Bahrain, Sudan, Yemen and Ethiopia.

“Some Saudi cement plants were constructed in border areas with the aim of exporting their products to neighboring countries but the export ban has inflicted heavy losses on them and could also force them to lay off workers,” he said.

Al-Rasheed said cement firms in Saudi Arabia, the largest Arab economy, are trying to reduce a surplus of more than 20 million tonnes by supplying domestic projects.

But he added:”Most of the local government and private sector projects now have sufficient cement supplies…we want the Saudi government to lift the ban on cement exports in line with international trade rules.”

Saudi Arabia, the largest Arab cement producer, partially lifted the cement export ban in 2009 before enforcing it again in 2012 to ensure enough supplies for domestic projects.

According to Al-Rasheed, cement demand in Saudi Arabia stood at around 57.2 million tonnes in 2014 and is projected to grow to nearly 59.5 million tonnes in 2015.

SAUDI ARABIA: Cement sales surge 3.8% to SR13.5bn in 2014

Sales of the listed cement firms grew by 3.8 percent to hit SR13.5 billion in 2014 compared to SR13 billion in 2013, according to a financial report.

Likewise, net profits of the cement sector rose by 6.10 percent in the year to SR6.2 billion compared to SR5.83 billion in the previous year, a report published by Al-Hayat daily said.

Capitals of the 14 listed cement companies stand at SR18.4 billion with their market capitalization worth SR82.3 billion, or 4.6 percent of the value of Saudi stock market, the report said.

Yamamah Cement Company (YCC) is considered the biggest in the terms of capital, which stands at SR2.02 billion, followed by Madinah Cement Company (MCC) at SR1.89 billion, the Northerly Border Cement Company (NBCC) at SR1.8 billion while Um Al-Qura Cement Company (UQCC) was the least at SR550 million, the report said.

Meanwhile, the National Committee for Cement Companies (NCCC) said the volume of demand on cement is poised to grow by 4 percent to reach SR59.5 million tons in the current year compared to 57.2 million tons in 2014, the report said.

Earlier, cement companies have called for opening doors to export surplus products which, they say, will have positive impact on all companies. They claimed that export ban had led to impede production lines and curb other economic activities related to the export operations in a manner that accumulated the cement surpluses of companies to more than 22 million tons, the report said.

Based on the financial reports of the listed companies, all firms have registered positive results in the year with the exception of one company, notably UQCC, which posted net losses of SR28 million for being new as it was established in July 2013 and listed on the Saudi stock exchange (Tadawul) in June 2014, the report added.

SAUDI ARABIA: Cement production hits 57m tonnes

Saudi Arabia, the largest cement producer in the GCC, produced over 57 million tonnes of cement in 2014, according to a report.

The kingdom, which recorded a 33.2 per cent capacity expansion in the cement sector in the last five years, is among the top 10 cement producers in the world, the Arab News report said.

The heavy infrastructural developments, including a series of economic cities have led to a high demand for cement in Saudi Arabia. Almost the entire cement production (98.8 per cent) of the sector is being consumed within the country itself, it said.

The strong project pipeline suggests that a huge demand for cement is likely to remain in force over the next few years. Fundamentals of the sector indicate an optimistic outlook in the long term.

Saudi Cement Company with its cement production of eight million tonnes and clinker production of 8.5 million tonnes remained at the top. The company showed a decrease of 8.5 per cent in yearly cement production and 3.4 per cent in clinker production as its Kilns 4 and 5 at Al Hofuf plant were under rehabilitation.

Southern Province Cement followed it, producing 7.77 million tonnes of cement, an increase of 5.6 per cent compared to 7.36 million tonnes of 2013, and produced 7.38 million tonnes of clinker during 2014. The company also intends to add a couple of more lines, which will commence commercial production in the fourth quarter of this year. Both companies contribute 27.6 per cent to the sector’s total production.

SAUDI ARABIA: Saudi cement makers seek resumption of exports

Saudi cement manufacturers are talking to the government to resume exports after lower demand in the second half of 2014 created a surplus of nearly 22 million tonnes, a newspaper in the Gulf Kingdom reported on Tuesday.

“We will again meet with ministry of trade and industry officials to discuss the resumption of cement exports,” chairman of the national committee of Saudi cement companies Jihad Al Rasheed told the Arabic language daily ‘Al Eqtisadiah.’

He said previous talks have made progress and that the committee received ‘positive signals’ from the government to allow cement producers to export their surplus.

Al Rasheed said a seasonal decline in local demand in the second half created a cement output surplus of nearly 22 million tonnes.

But he expected consumption to recover to about 35 million tonnes in the first half of this year, adding that this would allow cement factories to boost sales.

He told the paper that markets to be targeted by cement exporters include Egypt, Yemen, Iraq, Sudan, Ethiopia and Eritrea.

The paper quoted an unnamed manager of a local cement company as saying the trade and industry ministry feared that allowing cement manufacturers to resume exports would create a deficit in the domestic market.

“We believe the government should allow us to export in the second half when there is a surplus in production due to lower demand. The government should allow cement companies to export during that period so they can dispose of their surplus,” he said.

SAUDI ARABIA: Saudi Cement Q4 profit rises 9 pct, beats forecasts

Saudi Cement reported an 8.9 percent rise in fourth-quarter net profit on Wednesday, beating forecasts as cement sales increased.

The kingdom's largest cement company by market value made a net profit of 269 million riyals ($71.68 million) in the three months to Dec. 31, according to a bourse filing. This compares with a profit of 247 million riyals in the corresponding period of 2013.

Analysts polled by Reuters on average forecast Saudi Cement's quarterly net profit would be 259.8 million riyals.

The cement firm attributed its profit rise to higher cement sales and larger earnings from associated companies.

Saudi Cement made a profit of 1.08 billion riyals in 2014, down 4.4 percent on 2013. ($1 = 3.7527 riyals)

SAUDI ARABIA: Kingdom cement industry not out of the woods yet

Even with a number of big ticket infrastructure and real estate projects being slated for 2014, the Saudi cement sector "is not out of the woods yet with the labor shortage continuing to impact the construction sector," Al Rajhi Capital said in its latest analysis on the Kingdom's cement sector.

The Saudi cement sector is currently passing through a difficult patch as the labor issues continue to plague the construction industry. Sales volumes have declined, while inventory balances have hit a record high. High import volumes have hurt margins.

Nevertheless, the report said, the sector is likely to recover gradually as construction activities pick up steam once again as new laborers enter the Kingdom via the legal route.

Though the Q2 figures for cement dispatches are not very strong, there are signs of some improvementon a q-o-q basis lately, with a lesser decline in y-o-y dispatches than in Q1.

Though inventory balances continue to remain on the higher side owing to soaring imports, we can expect companies to rid themselves of this excess inventory going forward since they have now fulfilled their import requirements. However, companies could face falling margins and a slide in utilization rates in this bargain.

The Saudi cement sector is trading at a 2015E PE of 15.6x, slightly above TASI's PE of 15.4x. SPCC is trading at a multiple of 17.2x, and appears to be marginally stretched at the moment. YCC, on the other hand, is trading at a multiple of 16.7x.

Based on Al Rajhi Capital's valuation methodology, YCC is given a fair value of SR88.5 per share, which offers an upside potential of about 11 percent, making it an attractive opportunity at the moment.

For SPCC, it has a fair value of SR124.2 per share, which offers an upside potential of about 6.6 percent. Although the company is fundamentally strong, we have assigned it a Neutral rating due to the high stock price and limited upside from current levels.

Finally, both companies offer a dividend yield of about 6 percent (which is one of the highest yields in the sector) and boast high margins given their strategic locations.

"We expect muted Q3 results for cement companies in the absence of near-term growth catalysts, although dividend yields will remain high. However, companies are likely to continue recovering from the labor crisis-related issues, although a full recovery is likely to take a few more quarters. Our new stock initiations will now expand our coverage universe to seven stocks, which will offer investors ample choices to pick from," the report noted.

Despite a recent slowdown in sales, Yanbu Cement Company (YCC) presence in the high-demand western region of KSA coupled with adequate scope to improve its utilization rates could drive its growth over the medium-term.

Southern Province Cement Company (SPCC), on the other hand, is expanding aggressively with a couple of major production lines in progress at Tihama and Bisha, which once completed, will make it the largest cement producer in KSA, overtaking Saudi Cement. "We anticipate an interest in the stock as news pertaining to the expansion rolls in, but caution investors to wait for more clarity on the proposed plans," the report added.

SAUDI ARABIA: Cement sales down 3% to 4.59m tons

Sales of cement companies dropped by 3 percent to 4.59 million tons in February 2014 compared to 4.74 million tons in the same period last year, local media said.

Ten out of 14 cement firms operating in the Kingdom have their monthly sales dropped, notably Jouf Cement Company (JCC) and Najran Cement Company (NCC) whose sales dropped by 26 percent and 24 percent, respectively, the report prepared by Argaam Business Info (ABI) said.

Meanwhile, three companies have their sales grown during February compared to figures of the same period last year. Sales of Arabian Cement Company (ACC) and Safwa Cement Company (SCC) grew by 41 percent and 6 percent, respectively, the report added.

On the other hand, clinker production of the 14 cement firms jumped by 5 percent during the month to 4.07 million tons, according to the report.

Year-on-year basis, sales of cement companies rose by 4 percent to reach 55.6 million tons in 2013 compared to 53.5 million tons in 2012, according to earlier reports

SAUDI ARABIA: Saudi Cement posts SR256m net profit

Saudi Cement beat analyst expectations with an 8 percent fall in fourth-quarter profit, which the company blamed on lower sales and rising raw material costs.

The company made a net profit of SR256 million ($68.3 million) in the three months to Dec. 31, down from SR278 million in the year-earlier period, according to a statement to Saudi Arabia's bourse.

Saudi Cement attributed the profit drop to a decrease in sales during the quarter and the high cost of imported clinker, a raw material from which cement is produced.

Analysts polled by Reuters on average forecast Saudi Cement would make a quarterly profit of SR242 million. 

The firm's full-year net profit for 2013 was SR1.13 billion, up from SR1.10 billion in 2012. It cited improved operational efficiency as a reason for this increase.

SAUDI ARABIA: Saudi cement sales slowdown set to harden

The negative impact of labor shortages on Saudi Arabia’s cement industry will remain in the short term, NCB Capital, the investment arm of the Kingdom’s biggest bank by assets, warned.

NCB Capital lowered its annual cement sales target for last year to 53 million tons from a previous estimate of 56 million tons.

“We believe this slowdown will continue for the next few months and gradually improve as more legal workers arrive to the Kingdom,” it said in a recent research report.

After a strong start to last year, cement producers struggled after the government in November intensified its expulsion of two million illegal expatriate laborers. With many of those workers forming the backbone of the building industry, the crackdown led to suspension of construction projects and delays in the transportation of cement.

Cement sales in November slipped 15 percent from their level a year earlier, the largest year-on-year decline on record. 

NCB said it expected demand to be kept in check for the next four to six months.

Zamil Al Mugren, chairman of the Saudi committee for national cement companies, said last week sales growth last year would slide to about 3 percent, down from 10 per cent the year before. Sales by the Kingdom’s 15 cement firms dipped by nearly 30 percent after the enforcement of the amnesty in May, Al Mugren was quoted as saying in an Arabic language daily.

The downturn is taking a toll on cement stocks. They were the worst performers on the Saudi Arabian bourse last month, with Yanbu Cement falling by 5.6 percent to SR66.75 and Saudi Cement also dropping by 5.6 percent to SR101.

Levels of inventory have accelerated, rising to a record high of 13 million tons in November. Despite the excess stock, officials have said some of the Kingdom’s 15 cement firms are planning to commission new plants.

But NCB said that longer term, the outlook remained positive. “Over the long-term, outlook remains strong, supported by the increase in construction contract awards,” the report said.

It pointed to a 52 percent year-on-year rise in contract awards for the first nine months of the year to $6.72 billion. Saudi Arabia is building a number of big projects, including a metro in Riyadh and the expansion of King Abdulaziz International Airport in Jeddah.

SAUDI ARABIA: Cement sales down 17% to 3.65m tons in November

Sales of cement companies dropped by 17 percent in November 2013 to 3.65 million tons compared to 4.37 million tons in the same period in 2012, local media said quoting a report.

The sales drop was attributed to the correction campaigns and raids recently carried out against irregular foreign workers following the expiration of amnesty period on Nov. 3, experts said.

Sales of all cement companies fell during November with the exception of three companies, namely Northern Province Cement Company (NPCC), Arabian Cement Company (ACC) and Madinah Cement Company (MCC) whose sales increased by 58 percent, 24 percent and 20 percent, respectively, the report, based on data 
released by Yamamah Cement Company (YCC), said.

Riyadh Cement Company (RCC) and Jouf Cement Company (JCC) posted the biggest drop in November at 45 percent and 44 percent, respectively, the report said. Likewise, sales of Saudi Cement Company (SCC) and YCC contracted by 21 percent and 32 percent, respectively, according to the report.

Regarding clinker, the 15 working cement companies produced 4.75 million tons in November compared to 4.35 million tons in the same period last year, or an increase of 9.19 percent, the report said.

Earlier, a YCC report said cement sales rose by 2 percent to 4.19 million tons in October 2013 compared to 4.13 million tons in October 2012.

Additionally, the volume of cement produced by Saudi cement companies reached 4.23 million tons against 4.22 million tons in the comparable periods.

For clinker production, it soared by 19 percent in October 2013 to reach 4.74 million tons compared to 3.98 million tons in October 2012.

SAUDI ARABIA: Fire at cement plant set to cost $6.4m

Arabian Cement Company said that a fire which broke out at its third cement mill at its plant in Rabigh on September 20 was caused by an electrical problem.

The company said that although clinker production was not impacted by the fire, the temporary closure of one of its five existing mills is likely to lead to an expected temporary drop in sales of around 1,000 tonnes a day.

The fire was brought under control quickly, and there were no casualties, but it could be three-to-four months before normal operations resume. Arabian Cement said that the reduction in capacity is likely to lower sales by around $6.4m (SR: 24m).

The company said that it was currently studying ways of bringing the plant back on line more quickly.

In the six months to June 30, the company's net profit fell by 4.2% to $58.2m (SR: 218), which it blamed on an impairment in the value of its stake on Jordanian firm Qatrana Cement. The write-down in value, following a report by KPMG, was blamed on the low levels of demand and low prices achieved for cement in the market.

SAUDI ARABIA: Saudi cement market ‘prosperous’

The Saudi cement sector is fuelled by strong domestic fundamentals, namely: (1) the government’s continued high expenditure on physical and social infrastructure, driven by positive oil price movements, and buoyed by a young demographic structure; (2) relatively low fuel and raw material costs as a result of the subsidized power/ gas, and minimal royalty mining fees, sustaining domestic producers’ competitive advantage; and (3) new market entrants, leading to an influx in capacity dispersed geographically in areas of concentrated demand, the National Commercial Bank said in its latest "Saudi Economic Review" released Tuesday.

The size of the current cement market can be determined using the Kingdom’s construction activity as a proxy. Given the recent spike in construction, it is important to differentiate between core demand and transient demand for cement. Core is identified as the 2002-2006 CAGR demand for cement, which was equivalent to 5 percent. 

This period is generally representative of a natural business cycle for the Kingdom, excluding the intermittent construction boom. Transient is that generated from ongoing mega-project construction activity which we have identified as commencing in 2007.

Using the 2007-2011 CAGR of 15 percent, it can be assumed that the differential 10 percent represents transient demand because this trend is unlikely to continue in the long-term as the pace of new projects is likely to slow in the medium-term. 

Consequently, while in absolute terms transient demand appears to have increased since 2007, the overall growth trajectory is decelerating, with transient demand decreasing by 30.9 percent in 2011. 

By the end of 2011, total local sales amounted to 47 million tons, a 12.3 percent Y/Y increase. Of this total, an estimated 16 million tons represented transient demand.

According to the Central Department of Statistics and Information, a 50kg bag of cement in 2011 costs SR13.96 on average, which translates into SR279 per ton. Thus, total revenues are estimated to have reached SR13 billion. 

NCB estimates that total expenditure in the Saudi construction sector, as measured by its components in the country’s gross fixed capital formation (GFCF), reached SR169 billion by the end of 2011. This represented a 200 percent increase from 2000, and a 16 percent rise from 2010. The GFCF is composed of two components; Residential Building Construction (RBC), and Non-Residential Building Construction (NRBC). 

Examining the relationship between GFCF and the SR value of local cement consumption from 2006-2011, it can be estimated that, on average, the Saudi riyal value of local cement consumption accounts for an estimated 6.7 percent share of GFCF. 

According to market insights, the cost of cement accounts for a range of 3 percent-7 percent of the awarded contract value. It is important to note that GFCF is not accounting for the total value of contracts awarded, thus the two values are not equivalent. 

A key challenge to the sector is the ongoing export ban, which will serve to constrain growth for Saudi cement producers. In the almost four years since its introduction, neighboring and regional countries have developed their cement markets, becoming substitutes to the Saudi production. This will make it difficult for local producers to retain their high levels of exports should the export ban be removed. In addition, fuel shortages reported by some cement companies in recent months is another important challenge that the sector faces. 

According to market insights, it is new fuel allocation that is causing the delay, which is affecting the start of new production lines and output. Consequently, this will put upward pressure on cement prices, due to the increased reliance on inventory, which lowers stockpile levels, and results in a non-optimal utilization of resources.

SAUDI ARABIA: Saudi cement capacity to hit 66 mln tonnes-study

Saudi Arabia's cement production capacity is expected to jump above 66 million tonnes annually by 2015 from 47 million tonnes this year as the country gears up to meet demand for big infrastructure projects, a report from Al Rajhi Capital said.

"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 31 million tonnes in 2008 to 47 million tonnes currently and is expected to increase to over 66 million tonnes by 2015."

Saudi Arabia has rolled out three consecutive state budgets of record size as it aims to meet growing demand for housing and improve roads, ports, railways and bridges.

"Overall, we expect demand to rise gradually over the next three years from 41 million tonnes in 2010 to 57 million tonnes 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 249 riyals per ton ($66.40).

Saudi Arabia is the cheapest cement producer in the Gulf Cooperation Council and has a competitive advantage over global rivals as it benefits from subsidised fuel. Its cement production cost is around $30 per tonne against $44 in other GCC countries, the research report said.

There are 11 cement companies listed on the Saudi stock exchange. Al Rajhi's top three picks are Arabian Cement Co , Al Jouf Cement Co and Yamamah Saudi Cement because of expectations for strong profit growth.

"Arabian Cement is our top pick owing to its robust revenue and earnings growth, proximity to the western region (which is growing rapidly) as well as open investor relations," it said.

SAUDI ARABIA: Saudi cement producers to maintain competitiveness

Backed by sizeable government funding of physical and social infrastructure, access to subsidized fuel and limestone, and the proximity to respective markets, the Saudi cement producers are likely to maintain their competitive advantage over global players in the coming two years, the National Commercial Bank said Monday in its latest “Saudi Cement Sector Review”.

On average, energy costs represent 30-40 percent of total production costs, and are the second largest consideration to be factored into the cost structure of producing cement. 

The local price of natural gas is set at $0.75 MMBtu, significantly lower than international spot market prices that average between $2.50-$5.50 MMBtu. 

Given the ongoing construction boom, the report forecast that by 2013, designed clinker capacity will reach 55 million tons, with cement consumption increasing to 53 million tons. On the supply side, it forecasts designed clinker capacity to continue at 51 million tons in 2012. While capacity was meant to increase by 4.5 million tons this year, the shortage in fuel allocation may affect output this year for both Yanbu Cement and Southern Cement. 

Cement demand will rise to 49 million tons and 52 million tons in 2012 and 2013, respectively. 

It estimates that construction gross fixed capital formation (GFCF) will increase to SR209 billion as the GDP will reach an estimated SR2.27 trillion next year, with a resulting increase in cement prices. These will fluctuate within the range of SR268-SR290/ ton in 2013. “However MOCI is likely to intervene to maintain a stable price,” it added.

The report projects local per capita cement consumption to be 1,730 kg. Oil prices are likely to remain elevated for the coming year, albeit at a lower level of $95/bbl strengthening the demand for construction. 

With an estimated total of SR472 billion worth of contracts in the execution and EPC (bid) phases, SR217 billion represent projects that will be completed within 2012, and SR255 represent those that will be completed within 2013. On a Kingdom-wide scale, the Western region will command the most construction activity, accounting for an upcoming 39 percent of projects, followed by the Eastern region at an estimated 26 percent. An additional 8 percent of projects will be dispersed Kingdom-wide.

As demand from the Western region is poised to grow, existing companies will continue to compete for market share. The region, encompassing Jeddah, Makkah and Madina, enjoys major infrastructure projects across a number of sectors. It is the hub for both local (Red Sea) and religious tourism (Haj pilgrimage) necessitating hospitality services.

Transport infrastructure projects will command the largest share until 2013. These encompass expansionary works for King Abdulaziz International Airport, as well as developing the Haramain high-speed rail network with an awarded contract value of SR42 billion.

In the Eastern region, Saudi Aramco dominates the project market over the forecasted period, at an awarded contract value of SAR21 billion. This is followed by the aluminum project at Ras Al-Khair, which is owned by Ma’aden, at an estimated SR9 billion. Of the SR124 billion worth of awarded contracts in this area, SR50 billion worth of projects are set to be completed by 4Q 2012. 

The Central region’s importance as the political and business center of the Kingdom makes it an important target for cement companies. There are currently 114 ongoing projects, the largest of which is owned by Rayadah Investment Company (RIC). RIC is the Saudi Public Pension Agency’s company for investing in real estate in the Kingdom. In total, it is undertaking 14 projects in the Central region, with a total contract value of SAR27 billion. 

In the Southern region, Jizan province is commanding the largest share, at 42 percent of total contract value. Overall, the construction category accounts for SR7 billion of the total, with residential construction commanding the bulk, at 82 percent share. In the North, Prince Abdulaziz Bin Mousaed Economic City is a sizeable project. Its construction commenced in 2006, with a total outlay of SR30 billion over 10 years. 

Moving forward, Qatar will prove to be an important export destination for Saudi cement firms following its award of the 2022 World Cup. It is planning on spending an estimated $70 billion to develop the country’s infrastructure. With more favorable export conditions, the Kingdom has the potential for positioning itself as Qatar’s lead supplier. 

However, challenges faced the Kingdom’s cement sector, including the conditional export ban, which limits growth opportunities within the domestic market. Additionally, fuel shortages reported by some cement companies, and ongoing unresolved discussions with Aramco regarding fuel allocation, will cause delays in clinker production, affecting supply. 

Consequently, the tight demand-supply balance will continue to serve as another difficulty going forward, with the eight primary players competing to protect market share from new entrants. 

Despite the strong appetite and competitive pricing in funding the cement sector, the risk to Saudi banks remains in financing projects that are largely geared toward meeting transient demand.

“The ongoing export ban will serve to constrain growth for Saudi cement producers. In the almost four years since its introduction, neighboring and regional countries have developed their cement markets, becoming substitutes to the Saudi production. This will make it difficult for local producers to retain their high levels of exports should the export ban be removed,” the report said.

SAUDI ARABIA: Southern Province Cement to build US$188m third line at Tuhama

Saudi Arabia: Southern Province Cement (SPC), the Kingdom of Saudi Arabia's biggest cement firm by market value, and Chinese engineering company Sinoma have signed a US$188m contract for the installation of a third production line at SPC's plant in Tuhama.

The turnkey contract will be executed over a period of 24 months. Once completed, the third production line will have a clinker capacity of 5000t/day. SPC said that it will use its own funds to finance the project. In early March 2012, the Saudi company announced that the second production line at the Tuhama plant started commercial production, bringing SPC's total capacity to 23,000t/day.

SPC, one of the nine listed cement companies operating in the Kingdom, is based in Abha, southwestern Saudi Arabia. It operates factories in Jazan, Bisha and Tuhama.

SAUDI ARABIA: Cement sales hit new record

Cement sales in March 2012 grew by 12.6 percent to reach 4.9 million tons, a record high for monthly sales, based on a new report issued by NCB Capital on Wednesday.

According to the report, clinker production grew by 10 percent to reach 4.0 million tons, another record. However, clinker stocks declined sharply by 44.4 percent to reach 5.02 million tons, the lowest level since August 2008.

“Domestic cement sales rose 12.6 percent year to year and 10.2 percent month to month to 4.89 million tons in Mar-12. Local clinker sales rose to 135,000 tons against 10,000 tons in February 2012,” the report said.

On the other hand, “cement exports dropped 64.5 percent year to year and 17.7 percent month to month to 65,000 tons in March 2012,” the report added.

Cement production increased 12.6 percent year to year to 5.10 million tons in March 2012. Clinker production also increased by 10.0 percent year to year to 4.02 million tons.

The domestic cement market share of the unlisted companies decreased by 1.00 percent month to month to 18.4 percent; market share including exports and clinker sales also decreased by 1.30 percent month to month to 17.7 percent.

The Kingdom has 13 cement companies with an estimated annual cement production capacity of 52 million tons. In March 2012, total cement sales in the Kingdom stood at 4.89 million tons versus 4.35 million tons in March 2011 and 4.44 million tons in February 2012.

Domestic clinker sales came to 135,000 tons in March 2012 against no sales in March 2011; it surged to135,000 tons in March 2012 from 10,000 tons in February 2012. In March 2012, cement exports stood at 65,000 tons from 79,000 tons in February 2012, a drop of 17.7 percent month to month. No company reported clinker exports for March 2012. Two companies, Saudi Cement and Eastern Cement, exported cement during the month.

In March 2012, domestic sales of cement grew by 12.6 percent year to year to 4.89 million tons. The four private companies saw a 3.8 percent year to year increase in domestic cement sales, while the listed firms reported an increase of 14.7 percent year to year.

On a month-to-month basis, domestic cement sales increased by 10.2 percent compared to the 4.44 million tons in February 2012. Apart from Aljouf Cement, all companies reported an increase on a month-to-month basis. Among the listed companies, Yanbu Cement reported the highest month-to-month increase of 68.6 percent, followed by Tabuk Cement and Arabian Cement with 31.0 percent and 13.6 percent growth respectively.

On a year-to-year basis, Northern Cement reported the highest increase of 121.7 percent, followed by Saudi Cement and Yanbu Cement with 41.5 percent and 25.5 percent increase respectively. Najran Cement, Aljouf Cement, Qassim Cement and Tabuk Cement reported a year to year decline of 21.3 percent, 6.0 percent, 5.1 percent and 1.3 percent respectively in domestic sales.

The Kingdom’s cement exports decreased 17.7 percent month to month to 65,000 tons in March 2012. On a year-to-year basis it decreased 64.5 percent from 183,000 tons in March 2011 due to the export ban which only excludes sales to Bahrain. The year-to-year decrease was due to lower exports Saudi Cement which fell 32.9 percent. None of the companies reported exports in clinker for March 2012.

In March 2012, Saudi Cement and Eastern Province Cement exported cement. Total exports decreased 72.6 percent year to year. Saudi Cement reported the highest decline at 32.9 percent, while Eastern Cement’s exports increased by 16.7 percent on year-to-year basis.

Exports decreased by 17.7 percent on month-to-month basis. Only Eastern Cement reported an increase of 16.7 percent, Eastern Cement reported a decline in exports by 10.9 percent.

Saudi Arabia produced 5.10 million tons of cement in March 2012, up 12.6 percent year-to-year and 16.7 percent month-to-month basis respectively. On a year-to-year basis, among listed players, Saudi Cement reported the highest increase of 41.1 percent followed by Yanbu Cement, Arabian Cement and Yamamah Cement with 33.6 percent 27.7 percent and 24.6 percent increase respectively.

On a month-to-month basis, apart from Aljouf Cement which reported a decrease of 23.1 percent, all cement companies reported an increase in production, with Yanbu Cement reporting the highest increase of 87.6 percent. City Cement did not report an increase in production on month-to-month basis.

Clinker production was up 10.0 percent year-to-year and 22.3 percent month-to-month in March 2012. Among listed players, Southern Cement reported the highest increase in production of 44.8 percent year to year. On a month-to-month basis, Yanbu Cement reported the highest increase at 61.3 percent, followed by Yamamah Cement at 58.3 percent.

Clinker stock at the manufacturer level decreased 19.7 percent month-to-month and 44.4 percent year-to-year to 5.02 million tons. Cement stock increased 26.0 percent month-to-month and 11.6 percent year-to-year during March 2012.

Clinker stock as a percentage of monthly sales decreased to 101 percent in March 2012 compared to 138 percent in February 2012 and 199 percent in March 2011. Company-wise, Qassim Cement held the lowest stock percentage at 27 percent of March 2012 sales. On the other hand, among the listed companies (excluding Al-Jouf), Tabuk Cement held the highest clinker stock percentage at 216 percent of March 2012 sales.