Western Region cement producers to face pressure in 2017: Al Rajhi Capital

Al Rajhi Capital expects cement demand to remain modest in 2017 due to weak demand in construction activities as a result of government spending cuts, the company said in a report.

Demand from distant regions in the kingdom is expected to decline due to high transportation costs, coupled with higher discounts in these areas— which will likely make small players witness further contraction in their profit margins.

“In 2017, we expect cement producers in the Western region to be under pressure as two new players (Umm AlQura & United cement) commenced commercial production in 2016 which will lead producers in the region to compete on pricing,” the firm said.

The report said that according to Al Eqtisadiah newspaper, the Ministry of Commerce and Investment announced that five cement companies applied for the new export license. Al Rajhi, however, expects limited benefit from exports due to the high export fees (SAR 85-133 per ton), given that the average operating profit per ton in the sector was only about SAR 90 during the first nine months of 2016.

Al Rajhi Capital has maintained its recommendation of “neutral” with no change in the target price for Yamama Cement Co.; Yanbu Cement Co.; Southern Province Cement Co.; Qassim Cement Co.; Arabian Cement Co.; and Saudi Cement Company.