Al Rajhi: Saudi gigaprojects unlikely to stop cement demand cuts in 2019

Al Rajhi: Saudi gigaprojects unlikely to stop cement demand cuts in 2019
Average sales prices for Saudi cement remained weak in 2018, Al Rajhi Capital said in a report.
Published: 20 February 2019 - 6:45 a.m.
By: Jack Ball

Saudi Arabia's appetite for cement will continue to decline in 2019 with various high-profile megaprojects only likely to create incremental demand in the long-run, new research has revealed.

According to Al Rajhi Capital’s latest Saudi Cement Sector report, Q3 2018 saw the local sales volume decline by 13% year-on-year. Average sales prices also remained weak in 2018, the firm added, despite a sharp jump in cement prices sequentially in Q4 2018 for a number of companies. The trend was attributable to “producers’ preference towards higher pricing and the [postponing] of a price war”.

Looking ahead, the report said demand for cement will “continue to decline in 2019, on the back of limited capital spending by government”, coupled with rising construction costs.

The study adds: “The construction sector is expected to remain under pressure in 2019, due to higher costs on construction companies such as [contractor] Al-Khodari, including higher labour costs and energy prices, and the exodus of expat workers.

“The government’s announced megaprojects, including Neom, Qiddiya, The Red Sea Project, and social housing [schemes] are likely to create an incremental demand only in the long-term, in our view.”

With this in mind, Al Rajhi said it expected the total cement demand to decline by 5% year-on-year to approximately 39 million tonnes, with the kingdom’s central region impacted the most after being weighed down by double-digit sales volume declines at City Cement, Riyadh Cement, and Qassim Cement.

The report comes amid strong efforts by Saudi Arabia to diversify its economy away from oil and towards a more sustainable growth trajectory, driven in part by large construction works. The $500bn (SAR1.9tn) Neom is the centrepiece of Saudi Arabia’s gigaproject ecosystem and its Vision 2030 economic diversification agenda.

Construction will also begin on the 334km2 Saudi Public Investment-backed Qiddiya entertainment city in Saudi Arabia – the country’s first project of its kind – in 2019, as confirmed by senior officials in January.

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