Expected decline in 2Q Saudi cement sales

Saudi cement sales volumes are expected to have declined by 17 per cent YoY and 11 per cent QoQ due to a lower pace of project spending, Riyadh Capital writes in its latest preview report on the domestic cement sector. However, some welcome relief could come in the form of the government's decision to reduce the export tariff by 50 per cent, the research house adds.

The Saudi cement industry has been affected by falling cement prices and lowering demand amid the ongoing supply glut. Dispatches are expected to have reached 11.9Mt in 2Q17, comprising 9.1Mt in the first two months of the period and an expected 2.8Mt in June. Riyadh Capital projects that demand weakened more than expected in June – with sales down by 53 per cent MoM. The subdued scenario is likely to continue in 3Q17 due to less working hours in the construction sector over the summer season.

Production cuts expected
Cement production in 2Q17 is anticipated to have fallen 12 per cent QoQ and 19 per cent YoY to 12Mt, as the impact of the full 30 days of Ramadan and related holidays are felt. According to industry data, 9.1Mt of cement was produced in the first two months of 2Q17, and a further 2.9Mt is estimated for June 2017.

Riyadh Capital expects production cuts from Yanbu Cement, Najran Cement and Al Jouf Cement as producers tune utilisation rates to current demand levels and aim to curb a pile up of inventory stocks. Clinker inventories have increased by 39 per cent YoY to 28.5Mt to the end of May 2017 but remained largely stable compared with 1Q17, data presented in the report shows.

Effects of export tariff reduction
News that the government has decided to reduce export tariffs by 50 per cent from SAR85-133/t (US22.66-35.46) is expected to bring some relief to the sector. "This is a breather for the industry as nearly 5-6 companies have received a licence and are on the verge of starting exports, once demand and pricing offers an opportunity in the neighbouring markets,” Riyad Capital notes. Companies that have access to ports could be the biggest beneficiary of the move, but the benefits only have limited scope as a large surge in exports is not expected given the supply glut in MENA markets, it adds.