Saudi cement producers set to cut output on higher inventory

A number of Saudi cement producers are planning to shut down some production lines for around three months to reduce inventory levels, Al Eqtisadiah newspaper reported, citing Riyadh Cement Co. CEO Shuail Alayed.

These companies need to decrease production in order to cut down stockpiles of cement and clinker, Alayed said.

A decline in construction projects, lower fuel subsidies, increased competition, and lower demand have all led to higher inventories for Saudi cement firms. 

Cutting production will take place gradually in line with demand, and could raise the cost of cement per ton, Alayed added.

Saudi cement companies expect lower demand this year due to the slowdown in the kingdom’s economy and the energy price hikes of December 2015, which have weighed on the cement sector.

Moreover, some of the country’s infrastructure projects have been delayed, while others may be downsized or cancelled at a later date.

In a report issued earlier this month, Al Rajhi Capital said that weakness in Saudi cement demand may continue if there is no replacement demand when mega projects like the Riyadh metro and King Abdullah Financial District are completed.

“With demand unlikely to pick up steeply, cutting production would be one of the realistic options for balancing the market, especially for producers with highest inventories,” the brokerage added.