Saudi cement companies underperform

14 July 2015

Cement producers struggle as demand continues to surge

  • Yamama Cement records a 7.6 per cent decline in net profits
  • Arabian Cement’s net profits declined to SR16m
  • Demand to keep on increasing as Saudi Arabia’s construction market shows little signs of slowing down

Local producer Yamama Cement has recorded a 7.6 per cent decline in net profits for the first half of this year at SR191.4m ($50.9m).

The company attributed the decline to increased sale and administration expenses as a result of the two month employee bonus. The company reported gross profit of SR188m ($50.1m), which is a 5.3 per cent year-on-year decline. Despite this Yamama sold 1.52m tons of cement in the second quarter of 2015, registering a year-on-year increase of 1.3 per cent.

Another major producer in the kingdom recorded disappointing results. Arabian Cement’s net profits declined to SR162m ($43.1m), which is a 19 per cent contraction from the same period last year. It is understood that the decline is due to surging clinker demand in the western region as well as a decision to distribute a dividend of SR2 ($0.53) per share for the first half of 2015.

Meanwhile Qassim Cement recorded a 4 per cent year-on-year increase in net profits sitting at SR168m ($44.7). A report published by the local Al-Rajhi Capital says “Qassim is operating close to 100 per cent utilisation levels; thus, we do not expect any sharp rise in sales volumes in the near future.”

In 2013 Saudi Arabia was faced with a worrying shortage of cement. Now, it seems that local producers have been able to somewhat alleviate the surge in demand with production levels increasing although local companies will still struggle.

This has been supported by the decision in March 2012 to ban cement exports. At the same time, the government ordered cement companies to build up a stockpile of two months’ output, via imports, to help deal with any shortfalls in production.

The shortage was caused by booming demand for construction materials and heavy government spending on construction and infrastructure.

The kingdoms cement producers are unlikely to be relieved of increasing demand as Saudi Arabia’s construction market shows little signs of slowing down. According to data from regional projects tracker MEED Projects, Saudi Arabia’s construction market saw almost $14bn worth of contract awards so far this year, nearly double the $7.7bn that were awarded in the same period last year.

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