NCB Capital report finds that $207bn government expenditure causing cement demand
Saudi Arabia’s cement demand is being fuelled by government expenditure on infrastructure projects, a new report issued by NCB Capital found on Tuesday.
Recent intervention by the Saudi Arabian government to reduce the price cap and provide fuel to new expansions has aided the supply of cement and reduced prices, the report explained. However, it warned that supply constraints would be the key concern over the coming years.
With the government aiming to spend more than $207bn on railway, airport and other major infrastructure projects over the course of the year, the NCB Capital report says the demand for cement will increase. It added that government spending would continue to be the main driver for the sector in the medium term.
“On March 18, a Royal Decree instructed Saudi Aramco to provide fuels to all cement expansions temporarily for six months. At the same time, a committee was formed to analyse the current cement situation and forecast future demand,” the report said.
“The committee has to report its suggestions within six months. Moreover, the government has reduced the price ceiling from $66.6 per ton to $63.9 per ton, following the recent significant increase in prices. In addition, the Ministry of Trade announced that it is actively monitoring cement prices and that violators would be fined. In fact the ministry fined Najran Cement for not complying with the new price limit.”
Strong demand in the Western Region in 2012 was fuelled by the size and urgency of the projects in the region. These include Jeddah airport, Haramain Railway and other major projects such as Rabigh Port.
As a result, Central and Eastern Region cement companies have increased their sales in the West either directly or indirectly by selling cement or clinker.
Furthermore, this also means cement companies that already focused on the Western Region are best positioned to the demand momentum of the sector.