Saudi Arabia’s cement sector continued to remain under pressure with total cement sales volume declining 16 per cent year-on-year (y-o-y) to 3.7 million tons in August, posting 12th y-o-y decline in last 13 months, a report said.

However on a monthly basis, the combined sales volume increased for the second consecutive month, up 6.6 per cent in August as the activities have picked up post Ramadan and Eid- al Fitr seasons, said the latest Saudi Cement Sector report from Al Rajhi Capital, a leading financial services provider in Saudi Arabia.

Despite a 50 per cent reduction in export fees (from an earlier range of SR85 ($22.65)-SR133), Saudi producers did not export cement in August, owing to unfavourable economics. Total inventories rose 31 per cent y-o-y and 2.8 per cent m-o-m, reaching to a record new high at 34.5 million tons, representing 72 per cent of the last 12 months’ sales.

The record high inventory could be attributable to the lower demand amid slowdown in construction activities in the Kingdom and limited supply cut by Saudi producers. Clinker and cement production in the Kingdom declined by 3.2 per cent y-o-y and 12.4 per cent y-o-y, respectively in August. Najran (-53 per cent y-o-y), Saudi Cement (-34 per cent) and Riyadh Cement (-34 per cent) reported the sharpest decline in terms of sales volume in August, whereas Qassim Cement (3 per cent y-o-y) was the only producer in the Kingdom to witness an improvement in its dispatch in August.

Key takeaways:

•    In the first eight months of 2017, cement sales volume declined 18 per cent y-o-y to 32.1 million tons, while clinker production fell 10 per cent y-o-y during the same period. Northern Cement (-47 per cent y-o-y), Najran cement (-45 per cent) and Hail Cement (-38 per cent) witnessed the steepest y-o-y decline in terms of cement dispatches during the same period. Given that the construction activities are likely to remain weak, we don’t expect any significant improvement in the demand in H2 2017.

•    Despite a stiff competition in the sector, the market share of four cement companies namely, City, Qassim, Yanbu and Al Safwa have improved by 1.7 per cent y-o-y, 0.9 per cent, 0.8 per cent and 0.5 per cent, respectively during the first eight months of 2017. New entrants, United Cement and Umm alQura have gained 3.5 per cent and 2.4 per cent market share during the same period. Saudi and Southern Cement saw a decline in their market share by 2.6 per cent y-o-y and 2.2 per cent, respectively during the same period.

•    On the inventory side, Saudi (5.0 million tons), Yamama (4.4 million), Yanbu (3.8 million) and Najran (3.1 million) cement hold 47 per cent of the total inventory (34.5 million tons) in the sector. Hail (226 per cent) and Najran (161 per cent) cement hold the highest inventories as compared to last 12 month dispatches, while Arabian cement holds only 20 per cent, which is the lowest in the sector.

•    Northern Region Cement Co. (non-covered) has recently received a license to export cement outside Saudi Arabia from Ministry of Commerce and Investment. The company said that the validity of license would be one year.

“Companies under our coverage are currently trading at an aggregate forward PE of 12.1x, higher than its three-year average of 10.5x,”said Al Rajhi Capital. - TradeArabia News Service