Saudi cement companies profits fall

21 July 2010

Saudi Arabian cement producers see second quarter net profits drop 2.3 per cent

Saudi Arabia’s listed cement companies have suffered a 2.3 per cent drop in net profits for the second quarter of 2010, as private companies increased market share in the kingdom.

A soon to be published report by the local NCB Capital, the investment banking arm of National Commercial Bank, states that the market share of private companies increased year-on-year (YoY) to 23.1 per cent from 15.5 per cent.

“Private companies are doing significantly better than listed companies and taking a bigger share of the market,” Farouk Miah, analyst at NCB Capital says. “The outlook for the listed cement stocks still looks tough, primarily due to the intense and increasing competition from the private players, which will only get worse as new cement companies start operating in Saudi Arabia.”   

Net profit for the kingdom’s listed cement companies dropped to around $278mn in the second quarter. Yamana Cement was the highest earner with second quarter net profits of around $51mn, up 16 per cent year-on-year, while Yanbu Cement was the worst performer with profits down 25 per cent compared to the same period of 2009, to around $32.5mn.

Yamana Cement was cited as the best performing listed company due to the premium it can charge for its products because of its close proximity to a number of mega-projects under construction in Riyadh.

The situation in the kingdom has not been helped by the average price for a tonne of cement suffering a $2.13 drop in the second quarter, compared to the same period of 2009.

“This problem is in addition to the ongoing oversupply in the market the [cement] export ban makes the oversupply in the kingdom worse,” Miah says. “In the last half of the year we will see sale volumes naturally decline due to the summer and Ramadan and there will be continued pressure on the price of cement.”

Miah adds that he does not think the export ban on cement will be lifted by the Saudi Arabian government in the near future.

“The reason why Saudi Arabian cement companies have the highest profit margins in the world is because of government subsidies,” Miah says. “Because of this I can’t see the export ban being lifted anytime soon as it would effectively mean Saudi Arabia is subsidising cement for the Gulf region and why would they want to do that?”

One positive aspect of the report was sales volumes of cement and clinker did see a rise in the second quarter of 2010 compared to 2009. Sales rose to 11.96 million tonnes from 10.23 million tonnes in the corresponding period of 2009.

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