By: Mohamed Idris

Riyadh - Mubasher: The Saudi cement sector is facing additional risks from new production capacities, financial analyst at Aljazira Capital Jasim Al-Jubran told Mubasher.

Al-Jubran indicated that as Umm Al Qura Cement and United Cement companies go into production, they will contribute to the rise in clinker inventories; thus, increasing the intensity of the competition within the cement sector, which could lead to more discounts and lower prices to maintain market shares.

The rise in production against a weak demand led to a weak financial performance in 2015 and 2016, as inventories increased with the average selling price standing at SAR 192.2 per tonne during the fourth quarter of 2016, compared to SAR 217 in Q4-15.

Regarding Najran Cement obtaining an export licence, Al-Jubran pointed to the current circumstances that do not allow effectively using this licence, particularly as the geopolitical conflicts in Yemen carry on, which is considered a major market for Najran.

Al-Jubran believes that pausing production in some lines and facilitating requirements for exports are the main keys to lower stockpiles.

The government needs to ease these requirements as exporting fees currently range between SAR 85 and SAR 133 per tonne, he noted, adding that exporting costs increased by SAR 280 to SAR 340 per tonne, including operating and transportation costs, which is why lowering costs could help local producers increase sales and lower inventories.

Paying delayed obligations to construction companies can slightly help the sector, while it is more important to support new projects to create more and bigger opportunities to help the sector's growth and development.

The government began prioritising projects to increase efficiency after the fall of oil prices, which resulted in a slowdown for the construction sector.

As for 2017, despite allocating a bigger budget for capital spending at SAR 890 billion up from SAR 825 billion in 2016, the manufacturers of the cement sector are still under pressure from the increase in production capacities compared to the local demand, with an increase in stockpiles and limited exports.

Al-Jubran also expects the cement sector to recover by 2018, on the back of the better sentiment regarding the economy and the ambitious housing projects that include 280,000 new homes with funding from the real estate fund across the Kingdom.

Translated by: Moslem Ali