Saudi cement sales rise 17% in the first half of 2010

Cement sales in Saudi Arabia soared by nearly 17 per cent in the first half of 2010 to reflect a pick in construction activity as part of economic recovery triggered by massive public spending, official data showed Sunday.

Production by the Gulf Kingdom’s 12 main cement factories also swelled by around 18 per cent to meet domestic demand and export surplus to nearby Gulf countries and other markets, the Saudi Ministry of Trade and Industry said in a report about the country’s cement industry.

From about 18.9 million tonnes in the first half of 2009, total cement sales in the world’s dominant oil power climbed to nearly 22.1 million tones in the first half of 2010 as construction projects in the country gain momentum.

The report showed actual production by the 12 cement plants surged to nearly 22.7 million tonnes in the first half of this year from 19.2 million tonnes in the first half of 2009, an increase of around 18 per cent.

Production of clinker, the main component in the cement industry, fell by around four per cent to 18.8 million tonnes in the first half of 2010 from 19.6 million tonnes in the first half of 2009.

This depressed clinker stocks with the cement companies by around 12 per cent to 7.9 million tonnes from 9.05 million tonnes.

The report showed the surge in production boosted the Kingdom’s cement exports by nearly 37 per cent to 678,000 tonnes from 494,000 tonnes.

The surge in exports was also caused by a decision by Saudi Arabia, the largest Arab economy, to lift a ban on cement exports early this year.

The increase in cement sales in the first half of 2010 followed a surge of around 15 per cent in the sales through 2009 to reach around 37.8 million tonnes, which helped ease the tight supply situation that had persisted since 2006.

According to National Commercial Bank (NCB), Saudi Arabia’s largest bank by assets, the combined net profits of the Kingdom’s eight listed cement companies decline by nearly 9.8 per cent to SR3.6 billion last year despite higher sales.

The weighted average net-profit per tonne of cement sold, in both local and exports markets, also fell by 17.1 per cent to nearly SR114.52 per tonne.

“Going forward, demand stemming from capital investment expenditure plans announced in Saudi Arabia’s budget for this year (SR260 billion) should reduce cement inventories and support prices,” NCB said in a recent study.

Announcing its 2010 budget just before the end of the year, Saudi Arabia said it would maintain an expansionary fiscal policy to support economic growth following a sharp slowdown caused by the global fiscal distress.

Besides all-time high public spending, the 2010 budget also includes record investment expenditure of SR260 billion, an increase of about 16 per cent over the last year’s budget, which was the largest historically, and about three times the level in 2005, the first year in the current eighth development plan.

A government statement said the budget gives emphasis to projects that ensure sustainable and balanced development as well as job creation.

Total spending in 2010 was assumed at SR540 billion and revenue at SR470 billion, creating a deficit of SR70 billion.

Saudi Arabia, which controls over a fifth of the world’s extractable crude deposits, also plans to spend nearly $400 billion in the next five years on infrastructure and other development projects, according to official estimates.

NCB said licences for new cement projects and expansions of existing units would boost total production to a record 54 million tonnes in 2010.

“While cement exports absorb nearly 10 per cent of the total cement sales, the remaining 25 per cent is met by the transient demand created by the waves of construction projects, both public and private sectors,” it said.

“Upon completion of these projects, a time we believe could be around 2015, excess capacity above the sustainable domestic demand and exports is widely feared amongst industry analysts. Thus, in the domestic market perspective, the

capacity overhang looks as a real possibility that would tend to intensify competition among local cement producers and to push prices lower.”

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