Bloomberg/Simon Dawson

Business Economy

Saudi cement manufacturers suffocate as weak demand hits profit

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The sector is bedevilled by weak demand and increased competition, especially among producers based in western and central Saudi Arabia.

Tuesday 09, April 2019

(Bloomberg) --Cement producers in the Arab world’s biggest economy could be in for another year of low profits as major construction work announced by the government proves slow to get off the ground.

Combined net income for 15 listed cement companies in Saudi Arabia was $185.7 million last year, almost 90 per cent lower than the $1.6 billion posted as recently as 2014 and according to analysts there are few clear indications of an improvement this year.

A reduction in energy subsidies has added to their woes by raising transportation costs.

Saudi Arabia has announced initiatives such as the $500 billion futuristic NEOM city and the Red Sea Project to attract foreign investment and bolster non-oil revenue. Critics have questioned the mega-developments after previous efforts to construct industrial and financial cities struggled to take off.

Saudi Cement Company, based in the eastern petroleum hub of Dammam, recorded the largest net income among the 15 listed companies last year at about $107 million, down from the $121 million generated a year earlier. On the other hand, Tabuk Cement Company, located in the north-west of the country, was at the opposite end of the scale, with a loss of $26 million, more than four times wider than its loss in 2017.

Sameer Kattiparambil, the Vice President of Equity Research at EFG Hermes in Muscat, said, “The first signs of relief for the sector may emerge by next year, we see the mega-projects starting to impact the cement demand cycle in late 2019 or early 2020.”

 

TAGS : Saudi Cement Company , Tabuk Cement Company, The Red Sea project , NEOM City

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