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Wed 22 Oct 2008 11:40 PM

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Export ban bites into Saudi cement firm's Q3 profits

Saudi's largest producer Southern Province Cement's net profit drops 25% to $39.7mn.

Saudi Arabia's largest cement firm by market value on Wednesday blamed a near-25 percent in third-quarter profit on an export ban amid signs that a construction slowdown is taking its toll on local cement makers.Southern Province Cement Co made 149 million riyals in ($39.73 million) the three months to Sept. 30, down from 198 million riyals in the year-earlier period, it said in a statement on the bourse website.

"The decline is due... to a drop in sales as a result of halt in exports and an increase in costs due to maintenance works," the firm said.

The firm said the company's sales rose in both the first and second quarters.

The government slapped in early June a ban on exports of cement to alleviate supply bottlnecks amid a surge in demand both domestically and from neighbouring countries.

Saudi steel firms have been cutting prices over the past two months with the industry's leader Saudi Basic Industries Corp (SABIC) slashing the prices of reinforcing bar (rebar) by more than 40 percent since last month.

Having almost doubled in two years, steel prices started to decline recently after authorities banned scrap metal exports and as demand waned on spiralling costs which, along with other input costs, raised fears over the viability of some projects.

Saudi cement firms exported 3.5 million tonnes in 2007 which accounted for 12 percent of the total cement sales, BMG Financial Advisors said.

Before Southern Cement, all of the five listed Saudi cement companies that have announced their third-quarter earnings posted declines of between 26.6 percent for Qassim Cement and 58 percent for Tabuk Cement Co.

Qassim Cement attributed the drop to the government export ban, new capacities and to lower activity during the Muslim fasting month Ramadan, which coincided this year with September.

In addition to the export ban, Eastern Cement Co. cited lower demand after third-quarter earnings fell 53 percent.

"The ban forced prices down," said John Sfakianakis, chief economist at SABB bank.

Prices of cement stocks fell by between at least a third since the ban export measure was announced.

Cement output capacities are expected to double to 60 million tonnes within the next three years as existing companies expand and new producers enter the market.

Demand for cement is surging in Saudi Arabia, whose economy is booming on a surge in oil prices in the last six years.

Companies in Saudi Arabia, the world's largest oil exporter, are developing or have announced projects in oil, gas and industries worth some $580 billion, according to data from London-based MEED magazine.

Saudi cement firms production capacity is expected to rise to 43.6 million tonnes by end-2008 and to 49 million tonnes by end-2009 from 31 million tonnes in 2007, according to BMG.

Local consumption grew 8.4 percent in 2007 to 26.8 million tonnes, BMG said.

Net profits of Saudi cement firms is expected to rise by at least 20 percent in 2008, Faisal Hasan, head of research at Kuwait-based Global Investment House said in April.

Al-Watan newspaper said cement firms have urged the commerce and industry ministry to to lift the exports ban after stocks piled up to 4 million tonnes in early October. (Reuters)

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