Global Investment House – Kuwait - Saudi Arabia Economic and Strategic Outlook – Cement Sector -Construction has often been a major driver of growth, reflecting both the demographically driven need for housing, and efforts to build a modern infrastructure. The performance of the sector is closely related to the ups and downs of oil revenue and government spending. In recent years, construction has accounted for about 9% of non-oil GDP. A renewed construction boom is currently under way in line with the surge in public and public-sponsored investments. These include schools, hospitals, roads, railways, power and water plants, oilfield and industrial facilities, the expansion of the industrial cities of Jubail and Yanbu, the creation of a new financial district in Jeddah and the start of work on the ambitious new "Economic Cities".
The current construction boom has caused the cement market to tighten. In early 2007 the government intervened to prevent excessive price increases. The Kingdom has huge limestone deposits in the country which provide the much needed raw material for the industry. Another advantage is low energy costs due to large natural gas reserves.
Currently there are eight listed cement companies operational in Saudi Arabia, which are:
• Qassim Cement Company.
• Yanbu Cement Company.
• Arabian Cement Company.
• Yamama Cement Company.
• Saudi Cement Company.
• Tabuk Cement Company.
• Eastern Province Cement Company.
• Southern Province Cement Company.
In addition to these two new companies are being set up namely Riyadh Cement Company and Khayat Cement Company. At present, Yamama cement is the leader in terms of capacity and have a share of 20% (6mtpa) followed by Yanbu Cement at 4.8mtpa and Saudi Cement at 4.7mtpa.
During 2007, cement production rose to 30.29mn tons as compared to 27.05mn tons in 2006. Saudi Cement achieved the highest production numbers, clocking 5.27mn tons in 2007 as compared to 5.0mn tons in 2006. Yamama Cement was the 2nd largest producer, producing 4.65mn tons in 2007, as compared to 3.84mn in 2006. Yanbu Cement remained closed competitor of Yamama cement and produced 4.62mn tons of cement in 2007 compared to 3.52mn tons in 2006. Southern Cement - last year second position holder in terms of production remained fourth in 2007 with production of 4.61mn tons as against 4.60mn tons in 2006. Overall sales volume rose by 13% to 30.33mn tons in 2007 against 26.92mn tons in 2006. Domestic deliveries stood at 26.8mn ton in 2007 as compared to 24.74mn tons in 2006, rest being taken by the exports. In terms of sales, Saudi cement topped the charts with deliveries of 5.3mn tons against 4.97mn tons in 2006. Yanbu Cement, was the second with sale of 4.65mn tons in 2007 as against 3.49mn tons in 2006. Yamama cement and Yanbu cement followed the second position holder closely by delivering 4.62mn tons and 4.60mn tons respectively.
Table 31: Profitability of the cement companies
(SR mn) 2002 2003 2004 2005 2006 2007
Yamama Cement 320 389 542 501 601 730
Saudi Cement 344 403 438 484 638 686
Eastern Cement 237 251 270 299 445 541
Qassim Cement 233 244 246 282 316 541
Yanbu Cement 303 378 428 454 512 661
Arabian Cement 188 211 306 331 334 393
Southern Cement 468 484 546 615 624 712
Tabuk Cement 79 76 129 155 218 220
Total 2,172 2,433 2,904 3,120 3,688 4,485
Source : Zawya
The aggregate profit of listed cement companies in Saudi Arabia reached SR4.485bn in 2007 as against SR3.68bn in 2006, up 22%. The highest growth was registered in Qassim Cement which reported 71% growth in net profit in 2007 which can be attributed to increased production as it ramped up its capacity during the year. In amount terms, Yamama cement earned the most at SR730mn as against SR601mn in 2006, growth of 21%. With the increase in production due to the capacity increases planned in next couple of years, we expect profits of cement companies to show good growth. We believe that the new initiatives such as “Economic Cities’ will provide incentive to increase capacity which will translate to increased revenues and profits.
