JEDDAH – Cement demand in Saudi Arabia grew strongly by 12.6 percent YoY in 1H12 to 28.0 million tons reflecting the increasing pace of construction activity, Kuwait-based Global Investment House said in its latest “GCC Cement Sector" quarterly report. The Kingdom aims to expand the economy by rolling out its largest budget in history, with expenditures reaching SR610 million. This will help prosper the cement market due to higher demand of raw material including cement. In addition during July 2012 KSA's cabinet approved its first ever mortgage law, this will also stimulate the cement market through increasing construction activity, the law will help increase the 1.5 million units the kingdom needs to stem shortage. The cement and clinker production was particularly strong in 1H12 with total cement production growing by 10.9 percent YoY and clinker dispatches by 8.2 percent YoY. Saudi Cement Company dominates 1H12 in term of cement production and dispatches. SCC managed to have a 16.6 percent share in production and 16.1 percent market share in dispatches. Saudi Cement is considered the largest producer of cement in Saudi with a total production capacity of 11.5mtpa. Southern Province Cement Company followed, which continues to optimize usage of production lines and is benefitting from the strong demand in the southern region. Yamama Cement came third largest cement company in terms of production and dispatches witnessed a healthy double-digit growth of 12.6 percent and 10.7 percent respectively. Together in 1Q12 the three companies have a 43.1 percent market share in production and 42.9 percent market share in dispatches. In terms of YoY growth, Northern Cement continues to lead cement dispatches growth in KSA, increasing by 59.1 percent largely due to the low base effect. Saudi, Yanbu and Jouf Cement Company were the other strong performers with an increase of 33.2 percent, 33.1 percent and 18.8 percent YoY growth in cement dispatches in 1H12. Among the companies which witnessed a decline in cement dispatches were Najran Cement and Qassim Cement Company. Qassim Cement Company is the only listed company which has witnessed a decline in cement dispatches due to capacity limitations. Average realization prices increased by 3.3 percent to SR253.9 per ton in 1H12 on a yearly basis. The growth in 1Q12 was especially strong due to the higher revenues. However, on a QoQ basis, cement prices decreased 2.6 percent due to the Ministry of Commerce cap of cement selling prices of SR240/ton. The ministry in March issued a decree to price factory cement bags at SR12/bag and SR14/bag in local merchant markets. Saudi Arabia listed cement companies, excluding Hail Cement, posted a strong increase of 25.6 percent YoY in sales revenue to $1,599.5 million in 1H12 from $1,273.5mn in 1H11. Net profits also witnessed a significant increase of 25.4 percent to $778.6 million in 1H12 as compared to $620.8 million in 1H11. The increase in sales and profitability has been driven by increase in volumes sold. Meanwhile gross margins also increased modestly to 54.5 percent in 1H12 from 53.8 percent in 1H11. The cement stocks increased to 644,000 tons at the end of 1H12 compared to 487,000 tons during the same period last year. However clinker stocks has witnessed a huge 45.2 percent decrease in stocks as many companies, including Arabian and Qassim Cement, started to import from other local cement companies due to the high demand environment during the quarter. Regionally, the GCC's cement sector grew handsomely by over 17 percent in the six month of 2012, mainly due to significant rise in the topline of Saudi Arabia by over 20 percent. Oman stood second and reported a growth of 13.8 percent during the 1H12 period while Qatar and UAE reported roughly the same growth of approximately 11.5 percent. Saudi Arabia with its huge pipeline of projects is able to generate significant demand of cement which is helping the local and regional companies to post better numbers then last year. – SG
