The Saudi commerce ministry’s cancellation of cement export fees will have a limited benefit due to sluggish demand, regional political instability, excess supply, and competitive pricing, Al Rajhi Capital said in a note.
Excess inventory remains in the market, with stockpiles at 35.2 million ton, or three-quarters of sales over the last 12 months.
Reaching the optimal level of inventories, two months’ dispatches, will take time, the brokerage added.
“We saw a decline in inventories in the month of January (down 1.3 percent month-on-month), the first decline since April 2017, due to a 25 percent year-on-year fall in clinker production,” Al Rajhi noted.
Among listed cement companies, Yamama Cement and Qassim Cement showed improvement in selling prices in Q4, compared to the previous quarter (+10 percent on average).
“However, we don’t expect this improvement to continue given the tough market conditions,” the research firm said.
Following the announcement of the NEOM megaproject and an expansionary budget for 2018, cement stocks have jumped with the materials index rising about 10 percent.
“For now, we remain neutral on the sector given the low demand, high inventories and price war in the sector,” Al Rajhi Capital concluded.
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