Total cement sales in Saudi Arabia fell 16 per cent year-on-year to 4.78 million tonnes in January, highlighting a weak demand on an annual basis, said a report by top Saudi lender Al Rajhi Capital.

However, the sequential 11.3 per cent month-on-month growth is positive, as it possibly shows an early sign of demand stabilising at these levels, although a recovery is not expected soon, stated the report citing the latest monthly data released by Yamama Cement.

This sales volume, if sustained, may dispel concerns highlighted by some market forecasts showing demand steeply falling from these levels, according to the report.

However, Al Rajhi Capital cautioned that a healthy sustainable recovery would take much longer as total inventory remained at record high levels of 29.6 million tonnes, representing 55 per cent of last 12-month sales volume.

This will continue to result in more discounts being offered to customers, already witnessed in Q4 especially in the Central and Western regions, it added.

Al Rajhi said that clinker production in the kingdom came in at 4.24 million tonnes, down six per cent y-o-y, while it grew over eight per cent m-o-m. The City and Jouf cement were the only cement producers that reported y-o-y growth in sales volume, by 22.4 per cent and 2.5 per cent y-o-y respectively.

On the other hand, Northern and Hail cement witnessed the sharpest decline in sales plunging 56 per cent and 46 per cent y-o-y respectively.

The Saudi lender pointed out that weakness in cement demand may continue if there is no replacement demand when mega projects such as Riyadh metro and King Abdullah Financial District in the Central region get completed.

Notably, in 2016, Ministry of Finance had approved 1,192 construction projects, down 18 per cent y-o-y, however, the total value of the awarded projects dropped by 69 per cent y-o-y to SR24 billion.

With demand unlikely to pick up steeply, cutting production would be one of the realistic options for balancing the market, especially for producers with highest inventories, stated Al Rajhi in its report.

"Recently, Yamama Cement temporarily shut down five of its production lines. The lines have a joint clinker production capacity of 5,600 tonnes per day. We anticipate further announcements from other producers in the coming months," it added.-TradeArabia News Service