End of Yemeni conflict could provide lifeline for Saudi exporters

CNBC reported that US Secretary of State Mike Pompeo and Defense Secretary Jim Mattis have called for a cessation of hostilities in Yemen and the start of a conflict resolution – if it is indeed one – could open up an opportunity for regional cement players.

According to World Bank estimates, Yemen would need over many years and some US$85-90bn for its reconstruction process. According to initial estimates, this would translate to cement demand in the range of 8-10Mta (assuming a 10-year reconstruction) and the bulk of cement requirement would be met through imports, reports EFG Hermes.

Saudi Arabia would be the main beneficiary due to proximity to Yemen (can even access through roads) and availability of large excess capacity, as well as being a low-cost cement producer.  Yemen demand will still not be enough to consume the entire excess capacity (KSA currently has an excess cement capacity of 34Mt), but it would relieve some pain and help ease the pricing pressure.

Southern Province Cement and Najran Cement would be direct beneficiaries, as these firms have close proximity to Yemen and can access the country by road. Eastern Cement also has a 32 per cent stake in a cement plant in Yemen worth SAR124m.

Surprisingly, despite the limited access, Jouf Cement from the northern region has reported cement exports to Yemen during September albeit at a low level (9000t).

Other countries that may benefit
Oman's Raysut Cement used to export 250-300,00tpa of cement  prior to the Yemeni Crisis and owns cement silos in Aden and Mukalla ports. Hence, Raysut should be a key competitor in southern Yemen. Moreover, cement players from countries with excess cement supply like UAE, Iran and Egypt could hunt for market share as well

Cement prices in Yemen
Cement prices in Yemen would be at least in the range of US$80-100/t (by assuming US$50/t ex-factory price for KSA cement and the transportation cost). EFG Hermes assume only marginally higher ex-factory price from exports for Saudi Arabian players (US$50/t vs US$40/t in the local market), as the competition in Yemen's market will also be significant from the other regional countries.