Saudi megaprojects set to revive cement industry in 2022 after a disappointing year

Special Saudi megaprojects set to revive cement industry in 2022 after a disappointing year
A surge in construction activities due to The Red Sea Development Co. and AMAALA other development projects in Saudi Arabia to drive the recovery of the cement industry. (File/Supplied)
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Updated 17 April 2022

Saudi megaprojects set to revive cement industry in 2022 after a disappointing year

Saudi megaprojects set to revive cement industry in 2022 after a disappointing year
  • KSA witnesses a surge in construction activities due to the Red Sea and other development projects

RIYADH: A surge in construction activities due to The Red Sea Development Co., AMAALA and other development projects in Saudi Arabia such as NEOM and Qiddiya is expected to drive the recovery of the cement industry after the demand dwindled last year and early this year on account of the pandemic.

“The industry will be positively affected by renewed construction in the north, with The Red Sea Project, and residential developments. The effect won’t be immediate but will reflect on the long haul, until 2030,” said Omar Hatoum, general manager of Saudi concrete products manufacturers, SACEP, in an interview with Arab News.

In terms of residential developments, he said the Kingdom has already done a lot in past years. “This means the impact of any new developments on the sector will be spread over the next several years,” he explained. “These projects will translate into a gradual growth in the cement industry.” 

Mazen Al-Sudairi, head of research at Al Rajhi Capital, expects construction activity to boom on the back of rising commodity prices that have soared significantly this year, according to a cement report released by the asset management firm in late March.

“We also expect the inflationary trend to cap cement demand, as we expect cement sales will be flat to negative in 2022, compared to 2021, and constrain an increase in cement prices,” he said.

Although Al-Sudairi sees the financial performance of the cement sector improving, he expects improvement to be capped by weak demand and pricing conditions.




Construction work at labor village in TRSDC

Suspended capacities

The cement market in Saudi Arabia is concentrated with 17 market players in the country, according to Argaam.

Saudi-based Al-Emar Group Chairman Abdullatif Saleh Alsheikh points out that the country’s cement companies are currently operating at around 60 percent of their total capacity. “This leaves room for growth as companies reach full production potential,” added Alsheikh.

He does not see any new cement factories coming up soon, although some could open branches in the north to meet fresh demand there.

Cement volume for the eight months ending August 2021 increased marginally, by 4.5 percent year-on-year, according to a report by Al Rajhi Capital, released late last year.

The annual average growth rate in the cement industry — calculated by Arab News based on Argaam Investment Company figures — amounted to 3.3 percent.

Last year, the market was weighed down due to the COVID-19 restrictions and the slowdown in development projects. A gradual easing of restrictions and renewed construction, especially in megaprojects, is expected to bolster this year’s cement sector.

Al-Sudairi, in a report released last September, forecasted a recovery for the cement industry in 2022. He attributed this to projected spending growth to execute various mega and giga projects across the country. “These, in turn, are likely to aid in the recovery of construction product. However, these will take time to aid cement volume,” he noted.




Mazen Al-Sudairi

The cement industry witnessed slow growth and contractions in 2021, except for April and May.

Cement volume growth in April and May of 2021 was at 41 percent and 65 percent, respectively, year-on-year, according to Al-Sudairi.

“The growth for these two months was primarily driven by a lower base during the previous years due to COVID-related lockdown and travel restrictions. Excluding these months, cement sales would have been lower compared to the previous year,” he underlined in his report released last year.

Sluggish returns

Additionally, the cement industry witnessed heavy contractions over the last quarter of 2021. As an example, the aggregate sales of 17 Saudi cement producers decreased 6 percent to 4.9 million tons in January 2022, compared to 5.2 million tons in the same month the year before, according to a report by Argaam.

Total sales decreased 7 percent to 4.8 million tons in December 2021, from 5.2 million tons in the same month the year before. In November 2021, cement sales fell 5 percent to 4.7 million tons in November, compared to 4.9 million tons in the same month year before. They dropped even further to 10 percent and 4.5 million tons in October, compared to 4.9 million tons a year earlier.

This south-bound trend was reflected in Saudi companies’ profits, as the overall profit of 14 Saudi-listed cement companies dropped 29 percent in 2021 as revenues fell on the back of lower selling prices. 

FASTFACT

Increase in cement volume for the eight months ending August 2021 increased marginally, by 4.5 percent year-on-year, according to a report by Al-Rajhi Capital, released late last year.

The cement majors posted a collective profit of SR2.5 billion ($667 million) during the year, down from SR3.6 billion a year ago.

For example, a leading industry player, Saudi Cement, recorded a 27 percent decline in profit to SR332 million in 2021 due to a 10-percent drop in revenue.

Similarly, Najran Cement, Yanbu Cement, Qassim Cement, City Cement, Umm Al-Qura Cement, Eastern Province Cement, Saudi Province Cement, Tabuk Cement, Yamama Cement and Hail Cement all witnessed profit declines.

However, Northern Region Cement bucked the trend as its profit remained almost unchanged at SR107 million, even as sales dipped. Al-Jouf Cement, on the other hand, widened losses from SR98 million to SR150 million in 2021.

A drop in sales may not have been the only factor in companies’ profitability.

Riyadh Cement and Arabian Cement saw higher sales by 14 and 19 percent, respectively, and still recorded lower profits.

In the case of Yamama, although the company increased cement deliveries to the local market to 5.22 million tons in 2021 from 4.6 million tons in 2020, its sales revenues dropped by 23 percent year-on-year to SR735 million.

This downtrend suggests that in the case of Yamama Cement, the implied average price of one ton of cement on an ex-factory basis fell approximately 30 percent to SR140 per ton in 2021 from SR200 per ton in 2020.

“In our opinion, the fall in cement demand year-on-year can be attributed to lower construction activity due to a shortage in labor supply and the new regulations relating to new building permits,” added Al-Sudairi in the report.

Operational bottlenecks

Other key market challenges and fresh dynamics that are expected to impact the cement industry in Saudi Arabia include the expat levy on foreign nationals and the adoption of greener and newer technology for low-power-consuming plants.

The expat levy on foreign nationals was considered a significant challenge for the cement market in Saudi Arabia, according to a paper titled: “Cement Market in Saudi Arabia – Forecast and Analysis Report 2021-2025.”

“This expat levy is especially taxing on companies that have a workforce comprising more foreign nationals than Saudi nationals,” the paper stated.

In terms of new dynamics, the report noted that Saudi’s cement industry is eyeing greener and low consumption factories as fuel and energy costs typically account for 30-40 percent of total production costs.

“As a result, cement vendors in the region are focusing on adopting alternate ways to deal with expected increases in production costs due to higher energy prices,” it added.

Other trends include changes in cement price forecasts. Saudi vendors are further encouraging the launch of new products and expanding their client base after the ban on cement export was lifted. The relaxation in export restrictions aimed to promote the construction industry’s recovery. “If the ban isn’t reimposed, cement prices could go up again,” said Hatoum.


US firm Franklin Templeton planning to establish office in Saudi Arabia

US firm Franklin Templeton planning to establish office in Saudi Arabia
Updated 16 sec ago

US firm Franklin Templeton planning to establish office in Saudi Arabia

US firm Franklin Templeton planning to establish office in Saudi Arabia

RIYADH: US multinational holding company Franklin Templeton could transfer employees from Dubai to a new office in Saudi Arabia, Bloomberg reported, quoting people familiar with the matter. 

People who wished to stay anonymous revealed that Franklin Templeton’s CEO Jenny Johnson considers Saudi Arabia as a potential market for a major expansion. 

The report further added that the asset management company is planning to start the regulatory process to affirm its presence in Riyadh. 

The office in Riyadh will have investment teams and some sales and support on the ground, the people said. 

The workforce will be a mix of new recruits and internal transfers from the company’s employees in Dubai. 

Responding to the Bloomberg report, a spokeswoman for Franklin Templeton said: “While we have not announced any new office openings, we are currently exploring options to grow our regional footprint and will share details in due course.” 

She also added that Saudi Arabia is an important market in the region.

 


World Bank approves $500m loan for emergency food security project in Egypt

World Bank approves $500m loan for emergency food security project in Egypt
Updated 52 min 15 sec ago

World Bank approves $500m loan for emergency food security project in Egypt

World Bank approves $500m loan for emergency food security project in Egypt

RIYADH: The World Bank has approved a $500-million loan to help Egypt ensure an uninterrupted supply of bread as the country faces food security concerns amid rising prices and supply disruption due to the Russia-Ukraine war.

“This project supports the government’s strong commitment to ensuring that the needs of citizens continue to be met even amid a very challenging global context caused by concomitant crises such as COVID-19 and the war in Ukraine,” said Rania Al-Mashat, Egypt’s Minister of International Cooperation, in a press statement.

The loan given under the Emergency Food Security and Resilience Support Project will help Egypt finance the public procurement of imported wheat. This would be equivalent to one month of supply for the Bread Subsidy Program which supports around 70 million low-income Egyptians, including 31 million people who live under the national poverty line, said a press release.

Bread is a staple in Egypt and the World Bank said this new project will link wheat imports to direct assistance to the poor and vulnerable population through Egypt’s Bread Subsidy Program.

“As always we are keen to continuously support Egypt in overcoming obstacles to its ambitious sustainable development plans and to further enable the country to pave the way for a prosperous and productive future for all its citizens,” said Marina Wes, World Bank country director for Egypt, Yemen and Djibouti. 


Pivot Engineering wins $168m contract for Damac Lagoons development

Pivot Engineering wins $168m contract for Damac Lagoons development
Updated 29 June 2022

Pivot Engineering wins $168m contract for Damac Lagoons development

Pivot Engineering wins $168m contract for Damac Lagoons development

DUBAI: Emirati property development company Damac has awarded a $168.2 million construction contract for the Costa Brava cluster within its Damac Lagoons development to Pivot Engineering and General Contracting Co., MEED reported.

According to the report, the scope of work under this contract includes the construction of 976 townhouses for the project.

It was in November 2021 that the development works of the Damac Lagoons Project began in the inland Dubailand area.

The project also includes villas, townhouses, artificial beaches, and community facilities. Damac Lagoons Project which spans 45 million square feet also includes clusters named Venice, Morocco, Nice, Malta, Andalucia and Portofino.

Pivot Engineering and General Contracting Co. is headquartered in Abu Dhabi, and it has been working in the region for 44 years, according to the company website. 


Saudi Cabinet approves new companies law to drive entrepreneurship

Saudi Cabinet approves new companies law to drive entrepreneurship
Updated 43 min 5 sec ago

Saudi Cabinet approves new companies law to drive entrepreneurship

Saudi Cabinet approves new companies law to drive entrepreneurship

RIYADH: The Saudi Cabinet has approved a law allowing the creation of a new type of company in the Kingdom to boost entrepreneurship.

The new Companies law was signed off on Tuesday, and will regulate all provisions related to companies, whether commercial, non-profit or professional.

It allows a new form of company — called a Simplified Joint Stock Company — that meets the needs of entrepreneurship and venture capital growth.

It also allows the issuance of a family charter that regulates ownership in family businesses, in addition to governance, management, work policy, employment of family members and cash profits to ensure the sustainability of these companies.

“The new law will improve the financing and business dynamics in every sector in the economy, it should have a great positive impact on the economy for the next decades,” CEO of Razeen Capital, Mohammed Al Suwayed, told Arab News.

 “I can't point out a single impact because the impact is going to be happening in all of the sectors gradually,” he said.

It also reduces the legal requirements and procedures for small and medium enterprises, and simplifies the procedures for establishing companies.

Under this law, many restrictions in the incorporation, practice and exit phases and restrictions on company names have been removed.

According to the Ministry of Investment, the changes will also enhance the diversity and strength of the local market, and raise the level of competitiveness of the Saudi investment environment.

“The new corporate system came to achieve the hopes of family businesses, organize their business by concluding the family charter, encourage bold investment and address the challenges of entrepreneurs by approving the simplified joint stock company,” the Minister of Commerce Majid Al-Kassabi said. 

Real Estate Brokerage law

Another law signed off was the Real Estate Brokerage law, which aims to regulate the brokers business and provide innovative and high-quality services to beneficiaries.

“The Saudi Cabinet’s ratification of the real estate brokerage law will help ensure the reliability of real estate transactions through the Real estate General Authority,” Majid Al-Hogail, Minister of Municipal, Rural Affairs and Housing said on Twitter.

He added that It will also help raise the level of services provided and preserve the rights of customers in the sector through standards and procedures for doing business.

Al-Hogail indicated that real estate brokerage services are limited to brokers licensed by the General Real Estate Authority, and brokerage contracts and real estate transactions must be submitted electronically.

He said the commission and prepayment must be determined, and that violators will be subject to penalties under the law.

Abdullah Al-Hammad, CEO of the Real Estate General Authority, described the law as a “positive addition.”

“This law complements the legislative system that the General Real Estate Authority is working on to regulate the real estate market in the Kingdom of Saudi Arabia,” he told CNBC.  

 


Commodities Update — Gold buoyed by fall in US bond yields; Wheat up; Copper slips

Commodities Update — Gold buoyed by fall in US bond yields; Wheat up; Copper slips
Updated 29 June 2022

Commodities Update — Gold buoyed by fall in US bond yields; Wheat up; Copper slips

Commodities Update — Gold buoyed by fall in US bond yields; Wheat up; Copper slips

RIYADH: Gold prices treaded water on Wednesday, with lower US Treasury yields lending support, as bullion struggled to break out of range-bound trading.

Spot gold was up 0.1 percent at $1,821.53 per ounce by 0550 GMT. US gold futures firmed 0.1 percent at $1,822.10. 

Silver dips

Spot silver dipped 0.1 percent to $20.81 per ounce, while platinum rose 0.9 percent to $918.32. 

Palladium gained 2 percent to $1,911.72.

Wheat up, corn down

Chicago wheat futures extended gains on Wednesday, lifted by signs of improving demand and bargain-buying after three straight sessions of losses pushed the contract to its lowest since February.

Corn and soybeans edged lower.

The most active wheat contract on the Chicago Board of Trade rose 0.53 percent to $9.41 a bushel.

Corn fell 0.38 percent to $6.56-3/4 a bushel and soybeans edged down 0.5 percent to $14.55-1/4 a bushel.

Copper down

Copper prices slipped on Wednesday, as downbeat US consumer confidence data and prospects of rapid rate hikes to control a surge in inflation fanned fears of a global economic slowdown, impacting metals demand.

Three-month copper on the London Metal Exchange was down 0.6 percent at $8,314 a ton, as of 0702 GMT.

Prices of the metal, which are used as a gauge of economic health by investors, have fallen 23 percent since scaling a peak of $10,845 in March.

The most-traded August copper contract in Shanghai ended daytime trading down 0.9 percent to $9,466.07 a ton.

(With inputs from Reuters)