Riyadh - Decypha: Challenges facing Saudi cement firms continue as inventories pile up and demand decreases. The demand in the KSA market is lower than the supply, noting that demand fell by 20%, according to Jehad AlRasheed, CEO at Yamama Cement Co. who added that production amounts to 70 million tonnes yearly, with consumption reaching 50 million tonnes.
There is a difficulty in exporting the surplus, due to higher export fees, the CEO said, expecting that demand will decline until the end of the year.
Al Rajhi Capital expected that sales of Saudi cement firms would decrease between 29.5% and 38% in the first quarter of 2017.
The revenues of the cement companies will decline 38% year-on-year in the first quarter of 2017, due to lower sales’ volume by 24% in January and February.
Yamama Cement’s sales are likely to fall 33% in Q1-17 year-on-year, as the company will end up selling its products at low prices on the back of fierce competition.
Saudi Cement’s sales are expected to level down 29.5% year-on-year in January and February, with the low demand continuing in March weighted by lower competition in the region, Al Rajhi added.
Qassim Cement’s revenues may decline 29.5% year-on-year on lower sales by 17%.
We expect Yanbu Cement to offer more discounts to maintain its market share in the western region, Al Rajhi said.
The report further noted that due to the sluggish demand in the western region, decline in government infrastructure spending, and inventory pile-up, the company’s profits declined by 34% in 2016.
“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,” the report added.
The cement companies are currently trading at a price earning ratio (P/E ratio) of 15.4x, which is considered the highest average in three years.
Al Rajhi expected that the prices will see a decline, after enjoying healthy margins in the past.
By: Mahmoud Salah Aldin/Translated by: Sara Ghali
