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Saudi cement sales down 19% during Jan-July

Saudi cement sales down 19% during Jan-July

RIYADH: Saudi Arabia’s cement sales volume declined 19 per cent year-on-year (y-o-y) to 28.3 million tons during the first seven months of 2017, a report said. Meanwhile, clinker production fell 10 per cent on a yearly basis to 29.3 million tons and inventories stood at 33.6 million tons, added the Saudi Cement sector report from Al Rajhi Capital, a leading financial services provider in Saudi Arabia. Looking at capacities, inventories and potential demand of each region, the Northern region remains the weakest as current inventories represent 118 per cent of region producers’ dispatches in the last 12-months, the report said.

Weak demand within the region has led companies to reach out to far away regions which have negatively impacted companies’ profit/ton due to the high transportation costs. The increase in competition has also, no doubt, reduced realized prices. For Western and Southern regions, recent capacity additions have added to existing over supply. For the Central region, Q2 selling prices were lower than in the Western region as it is most accessible to producers despite favourable location and low inventories compared to other regions. Eastern region’s producers were impacted after implementing export fees on Bahrain exports, however, these exports are likely to re-start after the 50 per cent discount on fees.

In the near term, volatility and stiff competition on selling prices are likely to continue in the sector given the slowdown in construction activities and limited demand from mega projects. The decline in dividends for the first half of 2017 was expected due to the current weak market condition; however, current dividend yield in the sector is ~6 per cent as compared to the market average of 3.3 per cent. “Going forward, we believe there is limited downside (~10-15 per cent on average) for dividends, even if we assume this decline, the dividend yield will remain attractive at 5 per cent,” Al Rajhi Capital said in the report.