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Fri 27 Oct 2017 08:28 PM

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$500bn Neom city plan breathes new life into Saudi cement industry

Shares of major cement companies have all risen since announcement, bucking downward trend

$500bn Neom city plan breathes new life into Saudi cement industry
(BAY ISMOYO/AFP/Getty Images - for illustrative purposes only)

Saudi Arabia’s plan to build an entirely new $500 billion city by the Red Sea has breathed life into the country’s beaten down cement sector.

Shares of companies such as Saudi Cement Co, Southern Province Cement Co and Yanbu Cement Co, the country’s biggest by market value, have all risen since the kingdom announced the Neom plan earlier this week. The gains follow sharp declines for most of the year as investors recognize the potential for a change of fortune.

The announcement “is surely a long-term positive for the cement sector - a sector which has been reeling under immense pressure of overcapacity, inventory pile up, cost increases and a plummeting cement price, over the past two years,” said Ankit Gupta, vice president for research at Shuaa Investment Management in Dubai.

Three days of rising share prices bear testimony to the project’s significance. After falling 20 percent this year through October 23, Tabuk Cement has climbed 28 percent in the past three trading sessions, more than erasing its decline for the year.

Saudi Cement Co, Southern Province Cement Co and Yanbu Cement Co have all advanced at least four times more than the country’s main stock gauge.

Companies such as Tabuk and Al Jouf Cement Co that are located in the north of the country, near to where the new city will be based, stand to benefit most given that logistics are a major cost element for cement companies, Gupta said.

Still, the stocks may not be entirely out of the woods yet, according to Gupta.

“It’s a bit premature to be overly optimistic about the prospects of the entire Saudi cement sector, with the sector still having over ten months of inventories and limited short-term demand catalysts,” he said.

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