Saudi Arabia’s Ministry of Commerce may either raise the cement price cap, which currently stands at 240 Saudi riyals per tonne ($64/tonne) or could even remove it altogether following an increase in fuel prices from January 1, 2024, according to a report by Riyad Capital.

The cement companies are already facing challenges due to lower demand and prices, which could further exacerbate due to higher energy prices, it added.

“It is possible that cement companies would raise prices to pass on some of the hike and cement sales would be limited to the regions where the producers are located due to higher transportation costs.”

Saudi Aramco notified several petrochemical and cement companies of increasing the prices of certain feedstocks and fuel products effective 1 January 2024 – the first increase in feedstock and fuel prices since 2016.

For cement companies, the HFO380 (Heavy Fuel Oil) price is expected to have increased from SAR3.8 per barrel (bbl) to SAR8.3/bbl and Arab light price from SAR 6.35/bbl to SAR 14.9/bbl, Aljazira Capital said in a recent report.

“We expect higher feedstock costs to have a combined negative impact of SAR3.5 billion ($933 million), with gross profit margin contraction in the range of 140-300 basis points, on petrochemical companies under our coverage,” the brokerage added.

The report said that the cement sector companies under coverage are likely to take a hit of SAR550 million ($147 million) due to an estimated 11.5 percent rise in average cost per tonne.

“The impact on the cement sector seems more persistent irrespective of the business cycle as against the petrochemical sector. Thus, cement companies may require taking immediate action to mitigate the effects of higher costs, such as increasing selling prices and shifting to more efficient energy sources,” AlJazira Capital noted.

Read more: Cement prices to ease in Saudi’s central region as project awards diversify - Report

(Writing by D Madhura; Editing by Anoop Menon)


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