Saudi Arabia: sales volume falls 20% in 2M17

Cement sales in Saudi Arabia remain weak and see a further downward revision in sector earnings for 2017.



In the first two months of 2017, sales volume fell 20.4 per cent on an annual basis, while in 2016, cement dispatches declined 10 per cent YoY (54.8Mt), according to a report by Al Rajhi Capital.

"In this context, we show the impact on companies based on our expectations of demand in 2017. With regard to prices, we have already seen prices decline sharply for Central and Western regions as they are most accessible to producers," the report said.

 "If demand does not pick up, we believe there could be further downside to prices, after enjoying healthy margins in the past."

Already higher fuel prices, intense competition and inventory pile-up have triggered a price war among cement companies to maintain the market shares, which has negatively impacted profitability in the sector.

"We see limited benefits from exports as well and do not expect a near-term recovery in construction sector. We also highlight current upside and downside risks in the sector. Under current market conditions, we are Neutral on Saudi, Southern, Yamama and Arabian cement as we believe that most of the weaknesses are priced in, while we are underweight on Qassim and Yanbu cement," added the report.

In 2017 demand is unlikely to pick up steeply given that construction activities are bound to remain weak, thus Al Rajhi Capital  expect sales volume to remain modest with a decline of about 12-15 per cent YoY (about 47Mt).

On the supply side, clinker production in 2016 fell to 55.5Mt (2.6 per cent YoY). Clinker production this year could be cut by more than 12 per cent YoY, according to Al Rajhi Capital.