Prices expected to drop after hikes in the second quarter
Cement prices in Saudi Arabia are expected to drop under SR240 ($63.90) a tonne for the third quarter as production problems in the Western region have ended.
“The reason for the sharp pick up in prices in the second quarter was that some of the companies in the Western region had fuel problems. So the supply was shut down for a while. Demand remained high and a bit of panic entered the market and caused prices to shoot up,’’ says Farouk Miah, capital equity analyst at the local NCB Capital.
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‘’But from what I’ve seen and heard, that short term phenomenon has disappeared,’’ adds Miah.
In the second quarter, cement prices rose to an average price of SR241 a tonne from an average of SR229 a tonne in the first quarter. The average price of cement for the third quarter is expected to fall to about SR238 a tonne.
‘’We think that the quarter on quarter prices will be lower. There was a temporary spike in prices between April and June because of lack of supply in the Western region, but we predict that that spike was artificial,’’ says Miah.
Demand in the cement sector expectedly dropped during in August as activity in the construction sector slowed down for the holy month of Ramadan. NCB Capital estimates that absolute volumes of cement were down in August by 40 per cent due to the Ramadan slowdown.
There is still strong demand for cement in Saudi Arabia as the kingdom undertakes a massive infrastructure development programme. In July, the kingdom’s cement sales grew by 15 per cent year-on-year to 4.2 million tonnes, according to data from NCB Capital’s KSA Cement Monthly report.
Demand has also increased due to neighbouring Bahrain removing its temporary import ban. In May, Bahrain halted imports of cement as a result of the spike in prices.
‘’As far as I’m aware the Bahraini ban on Saudi cement imports has been removed,’’ says a consultant based in Riyadh.
Bahrain is the only country that can import cement from Saudi Arabia, after the kingdom introduced an export ban on cement exporting that has been in place since the middle of 2008. Analysts do not expect the ban to be lifted.
‘’As far as we are aware it will remain in place for the foreseeable future. The Saudi government does not want local projects to suffer from lack of cement supply,’’ says Miah.
Despite the export ban, suppliers in the kingdom are bullish about the cement market’s prospects due to the raft of construction projects planned in the kingdom.
‘’We expect the market to grow by 8 to 10 per cent year-on-year,’’ says a local cement supplier.
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