Saudi cement demand to drop 9% in 2017, says SICO

Saudi Arabia’s cement demand is expected to fall 8.6 percent year-on-year (YoY) in 2017, ahead of rising by 2.5 percent YoY next year, Bahrain-based SICO investment bank said in a recent report.

A slow recovery is projected in the second half of this year, with demand to be driven by social housing projects and the impact of the white land tax. However, project cancellations will weigh negatively on demand.

“Overall, we are not convinced yet of a meaningful demand recovery over the next twelve months which can offset the overwhelming supply pressures in the sector,” the investment bank added.

The Saudi cement industry is seeing a significant amount of new supply this year, most notably in the western and southern regions of the Kingdom.

Production discipline and exports will be the main catalysts for any turnaround in the sector. However, high clinker stocks are expected to keep pricing under pressure, while exports will remain subdued due to a prohibitively high tax, SICO said.

Over the long term, central and eastern region producers are favorably placed from a supply-demand perspective. Accordingly, Saudi Cement, Eastern Province Cement and Yamama Cement are expected to benefit from a strong improvement in demand.

Meanwhile, the ultra-low transportation costs are the main reason behind price wars, the report said, adding that this could change once diesel prices are increased.

SICO affirmed its “Buy” recommendation on Arabian Cement and its “Neutral” rating on Yanbu, Qassim and Yamama.

Meanwhile, the brokerage maintained a “Sell” rating on Saudi Cement. Southern Province Cement was cut to “Sell” due to the steep decline in Q1 2017 pricing, which is forecast to continue under the current demand-supply environment and bleak outlook on exports.