Mega projects will lead to incremental cement demand: Al Rajhi Cap

Mega-projects such as NEOM, Qiddiya, Red Sea Tourism and social housing are likely to create incremental demand for the cement sector only in the long-term, Al Rajhi Capital said in a recent report.

Total cement demand is, however, anticipated to decline by five percent year-on-year (YoY) to 39 million tons as the construction sector is expected to remain under pressure this year on the back of limited capital spending by the government and rising construction costs.

The consultancy expects the current sales prices to remain firm as producers focus more on pricing rather than volume.

According to Al Rajhi, the cement sector continued to remain under pressure for the third consecutive year, with the local sales volume declining 13 percent YoY in 2018.

Average sales prices remained weak last year, although cement prices rose sequentially in Q4 2018 for a number of companies, due to producers’ preference towards higher pricing and the postponement of the price war, Al Rajhi noted.

Central region was impacted the most, with the market share falling to 27 percent weighed down by lower sales volume of City CementRiyadh Cement and Qassim Cement

Meanwhile, total export of cement and clinker is expected to reach 5.5 million tons in 2019 as lower domestic demand will push manufactures to export.

Total exports jumped to 4.3 million tons in 2018 from 165,000 tons in 2017.

“We believe that the companies have to look for more export opportunities to liquidate the huge inventory level amid weak domestic cement demand. The average realized export prices could be lower, largely due to oversupply market condition in the most of neighboring countries,” the consultancy stated.

Published by Argaam