The inflationary trend in construction materials is set to continue amid the ongoing Russia-Ukraine war as these two countries are together the second largest steel exporters globally, said a report by Al Rajhi Capital, one of the leading asset managers in Saudi Arabia, adding that this trend will also cap the cement demand.
"In 2022, we expect construction activity to be impacted by increasing commodity prices. As on March 28, Bloomberg commodity price index has increased by 126% year-to-date," it stated in its review.
Citing the data from World Steel Association, Al Rajhi Capital said the prices of aluminium and steel have increased by 28% and 17% respectively and this in turn is likely to impact construction spending in Saudi Arabia, "with mega and giga project execution, likely to be cautious."
The cement sales volume for 2021 has been flat at 2020 levels, while the kingdom operated at an average capacity utilization of 75% and a clinker inventory of 8 months, it noted.
"We also expect the inflationary trend to cap cement demand, as we expect cement sales will be flat to negative in 2022, compared to last year, and also constrain an increase in cement prices," said Al Rajhi Capital in its review.
Added to this, the steps taken by the companies to improve market share have resulted in oversupply, resulting in substantial pressure on cement prices in Q4 2021, mainly in the central region as prices was not sustainable.
This in turn has resulted in pressure on the profitability of companies across the region, especially the companies in the central region, in Q4 2021, said the leading asset manager.
"We feel that these levels of prices are not sustainable and we expect the same to improve from Q1 2022. However, the improvement in prices will be capped due to pressure on demand," it stated.
On its future outlook, Al Rajhi Capital said: "Overall, we expect the financial performance of companies under our coverage in the Central region to improve and will be aided by an improvement in the average realization from Q4 2021 levels."
"However, the improvement will be capped, in line with the weak demand and pricing scenario," he added.-TradeArabia News Service
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