The lifting of the export ban on cement in Saudi Arabia is unlikely to lead to major benefits for cement producers in the Gulf kingdom, according to a research note issued by Arqaam Capital.
Saudi Arabia last month lifted the ban as the kingdom’s construction industry continues to suffer from the impact of lower oil prices, which has resulted in the government cutting back on spending on many projects.
The Saudi government imposed a ban on cement exports in 2008 to push prices down and accommodate demand from large government-funded infrastructure projects, although some companies were allowed to export at prices lower than those in the local market.
But Mohammed Kamal, executive director, Equity Research at Arqaam Capital said the boost to cement producers was likely to be limited.
He said: “Export volumes would likely be capped at 20 percent of output and possibly subjected to an export tax. The net effect should be margins erosion, which partly dilutes the earning per share growth that results from the expansion in headline sales.”
According to the research note, the exported cement volumes will likely be taxed an amount equivalent to the fuel subsidy they carry taking into account that the remaining subsidy of SR10 per ton was previously removed via reforms to industrial fuel prices.
This, coupled with transport costs of at least SR80-100 per ton as opposed to SR50 per ton domestic land freight costs between regions, should lift the average cash cost per ton by 50-70 percent to SR190-260 per ton, eroding the bulk of the margin differential Saudi producers enjoy over global peers.”
He added that the domestic supply situation remains difficult, with a substantial near/medium term surplus of 60 percent, given stalled domestic contracts and the fact that few export markets are currently viable.
The research report sees Yemen, Egypt, Qatar, Jordan, the UAE, Bahrain, East Africa, and Iraq as potential export destinations.
Follow us on
