Saudi cement firms are likely to see a further increase in exports as the weak local market continues, which could help the sector liquidate the current huge inventory, Al Rajhi Capital said in a recent report.
“We believe that the new export opportunities had allowed the companies to focus more on prices and to liquidate the huge accumulated inventories level amid weak domestic cement demand,” the brokerage firm added.
In Q1 2019, Saudi companies had exported 459,000 tons of cement, compared to 38,000 tons in year-earlier period. Clinker exports also rose to 2.04 million tons, from 127,000 tons of a year earlier.
Total exports accounted for 18.8 percent of total sales in Q1 2019 compared to 1.4 percent for the same period last year.
Demand is likely to drop significantly in the coming two quarters due to seasonality factors (Ramadan, Eid and summer vacation).
In addition, the construction sector is expected to remain under pressure this year amid limited government spending and rising costs for the construction firms (such as Al Khodari) on higher labor costs and energy prices, and expat departures.
“Consequently, we expect the total cement demand to decline by 5 percent year-on-year to reach ~38mn tons,” the report said.
The current sales prices to remain firm as producers are now focused more on pricing rather than volume.
Al Rajhi Capital affirmed its “neutral” rating on the sector, given the current weak market dynamics.
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