Rise in Saudi cement prices only temporary

07 June 2011

Cement prices in the kingdom have increased quarter-on-quarter

Cement prices in the kingdom are estimated to have risen to SR235 ($62.70) a tonne in the past couple of months from the SR228 a tonne market average in the first quarter of the year as a result of lower production in the western region.

‘’Prices have increased quarter-on-quarter. There was a short-term supply-demand mismatch in the western region, which shut down about 35-40 per cent capacity for a few weeks. This resulted in prices going up,’’ says Farouk Miah, capital equity analyst NCB Capital.

It was not just the western region which has seen an increase in cement prices since the end of the first quarter.

‘’Demand has been very strong for the rest of the country too. Demand grew by 16 per cent year-on-year in April,’’ says Miah.

Cement demand in Saudi Arabia is more robust than elsewhere in the region because of plans to upgrade the country’s infrastructure. The kingdom’s infrastructure programme was given renewed impetus in March when King Abdullah bin Abdulaziz al-Saud announced that Riyadh is to spend $67bn to build 500,000 new houses by 2014.

For the first quarter of 2011, the average cost of a 50kg bag of cement in Saudi Arabia was $3.60, up from $3.10 in the same period in 2010, according to figures from UK-based consultant Davis Langdon. The price of ready-mix concrete remained flat over the past year at $63 a cubic-metre.

In addition to a reduction in production, prices may also have increased since the first quarter following King Abdullah’s pledge in March to provide new homes for the country’s rapidly growing population.

‘’If someone was planning to build a big house or private hospital they may want to move that forward in order to reduce the risk of higher prices further down the line. Maybe some of these private projects have been moved forward to avoid higher prices in 12 months time,’’ says Miah.

In May, as a result of the spike in Saudi Arabia’s cement price, Bahrain halted imports of Saudi cement. In recent years, Bahrain has imported about 75 per cent of its cement from Saudi Arabia.

“Given some of the supply and demand issues in Saudi Arabia, the companies that were exporting thought that they would ramp up the prices for Bahrain as well. This didn’t go down well in Bahrain,’’ says a consultant based in Riyadh.

Bahrain is the only country exempt from the cement exporting restrictions, which have been in place in Saudi Arabia since 2008. The restrictions were in place during concerns of a domestic cement shortage. The export price of cement is currently capped at SR200, which is lower than the current estimated market price of SR235. This has forced most cement producers to focus on internal demand.

‘’The export ban is still in place. There has been talk of lifting it yet, but nothing has been done yet,’’ says a sales manager from Dammam-based Saudi Cement Company, which has a production capacity of 7 million tonnes of cement a year.

However, the recent rise in the kingdom’s cement prices is not expected to last and there is still expected to be an oversupply in the next year.

‘’If you look at the big picture, there is plenty of supply. Prices should not be spiking like this, it is temporary,’’ says Miah.

‘’Many of the large projects planned are long term, so it will have little effect on cement prices in the short term,’’ he adds.

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