We at MEFIC Capital research are aiming to introduce quarterly Sector monitors. We initiate the periodic quarterly sector monitors with the cement sector. These analyses provide key demand-supply trends at the sector and company level and quarterly earnings performance of listed cement stocks.
The key highlights of Saudi Cement Sector as per latest information are:
• Cement sales in Saudi Arabia dropped 12.8% YoY during the first eight months of 2018. Clinker production, on the other hand, fell only 6.1% YoY. This has led to build-up in inventories to record levels across cement producers in KSA, which stood at an all-time high of 39.7 million tons in August 2018.
• Cement prices fell to SAR 12.24 per 50 kg bag in July 2018, the second-lowest monthly figure since January 2007.
• One of the major dampeners of cement demand was lower spending on infrastructure sector during the first half of 2018, coupled with lower credit exposure to construction activity amid rising interest rates.
• Cement exports slowly started to pick up after the Saudi government ended export duties on cement in February 2018, after having reduced it by 50% in July 2017. During the first eight months of 2018, exports volume increased 249% YoY to 568 thousand tons.
• Cement companies from Northern and Eastern region have improved their volumes this year, helped by the start of the initial stages of the NEOM megacity project and scrapping of export duties respectively.
• In terms of company-wise market share, the top three companies were Southern Cement, Saudi Cement and Yanbu Cement, which commanded a market share of 12.8%, 12.3% and 11.2% respectively in the first eight months of 2018.
• In terms of operational efficiency, the average capacity utilization rate across the sector was 77% during the last 12 months (September 2017 to August 2018). City Cement had the highest capacity utilization of 125%, followed by Hail Cement at 103%.
• After a difficult Q1 2018, cement companies continued their subdued performance with even weaker earnings in Q2 2018, posting an aggregate net loss of SAR 54.2 million (-112.2% YoY), with significant decline in operating margins as well.
• We remain cautious on the sector, with weak demand weighing down on cement prices and clinker inventory at all-time high. However, we expect a moderate recovery during the second half of 2018, backed by higher government spending on infrastructure, exports picking up and new construction work starting in USD 500 billion NEOM Mega City project.
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CEMENT SECTOR QUARTERLY REVIEW