Saudi Arabia cement sales volumes ‘drop by 19%’
Report finds that northern region of KSA remains the weakest
Saudi Arabia’s cement sales volumes have dropped by 19% year-on-year to 28.3 million tons during the first seven months of 2017, while clinker production has fallen by 10% on a yearly basis to 29.3 million tons, a report from Al Rajhi Capital, a financial services provider in the kingdom, has found.
The Saudi Cement sector report added that inventories stood at 33.6 million tons. However, it pointed out that when looking at capacities, inventories and potential demand for each region, the northern region remains the weakest as current inventories represent 118% of regional producers’ dispatches in the last 12 months.
Weak demand within the region has caused companies to reach out to far away regions which has negatively impacted companies’ profit/ton, due to the high transportation costs. The report also warned that the increased competition has also reduced realised prices.
For the western and southern regions, recent capacity additions have added to existing oversupply, the report added. For the central region, Q2 selling prices were lower than in the western region as it was most accessible to producers despite favourable locations and low inventories compared to other regions.
In the eastern region, producers were impacted after implementing export fees on Bahrain exports. However, these exports are likely to restart after a 50% discount on fees.
With regards to the near term, volatility and stiff competition on selling prices are likely to continue in the sector, given the slowdown in construction activities and limited demand from megaprojects.
The decline in dividends for the first half of 2017 was expected due to the current weak market conditions; however, current dividend yield in the sector is ~6% as compared to the market average of 3.3%.
“Going forward, we believe there is limited downside (~10% -15% on average) for dividends, even if we assume this decline, the dividend yield will remain attractive at 5%,” Al Rajhi Capital concluded.
