Cement market profitability fueled by mergers: Analyst

Amr Nader, CEO of A3Q&CO

Amr Nader, CEO of A3Q&CO, said that Saudi Arabia's cement market is experiencing a surplus exceeding 30% of production capacity, a situation that has continued for more than 10 years, despite strong domestic demand that is three times the global average.

In an interview with Argaam on the sidelines of the Future Cement Initiative, Nader added that the sector's production capacity is around 85 million tons per year, compared to demand that does not exceed 55 million tons, thus creating a gap of approximately 30 million tons.

Demand for cement is driven by actual consumption due to the short storage period, while clinker is a major component of inventory accumulation, with an estimated inventory of 50 million tons, equivalent to a full year's consumption. The intensity of operating and capital costs is pushing companies to produce at maximum capacity to reduce costs, according to the analyst.

He further pointed out that the continued rise in inventory negatively affects capital efficiency, which calls for solutions such as expanding exports, developing products, and diversifying sources of income. "However, exports in Saudi Arabia currently only contribute to maintaining inventory levels without reducing them, due to challenges related to carbon footprints, the distance of some factories from ports, and geopolitical tensions in the Red Sea," he added.

Nader also pointed out that cement exports currently account for about 12% of total sales of companies in the Kingdom, which is a high percentage compared to neighboring countries.

Regarding price pressures, he explained that the gap between supply and demand, companies' reliance on intermediaries, and the absence of long-term contracts with some major projects lead to increased price competition within the sector.

As for the future of the market, Nader emphasized that cement markets do not correct themselves automatically, indicating that solutions include regulatory intervention, enhanced governance, or a move toward mergers.

"Mergers are the most realistic option, given that 17 companies are competing for half of the market's capacity. Reducing the number of companies could increase operational efficiency and improve profitability," said the analyst.

He added that setting a regulated price range could give companies greater flexibility in managing production and inventory until the sector's restructuring is complete and its balance gradually improves.