Saudi Arabia's cement industry witnessed a slight drop in the inventories in January, (down 1.3 per cent month-on-month (m-o-m), the first such decline since April 2017, mainly due to a 25 per cent year-on-year (y-o-y) plunge in clinker production, while its m-o-m figures fell 14.4 per cent, said a report.
Industry experts expect production cuts to accelerate going forward, stated Al Rajhi Capital Research in its monthly report.
"As we expected, Ministry of commerce announced the cancelation of export fees. However, we believe there is limited benefit from the move due to sluggish demand and political instability in the neighboring regions, excess supply and competitive pricing in the region," stated the report.
According to experts at Al Rajhi Capital Research, the excess inventory remains in the Saudi market.
"Inventories stand at 35.2 million ton (75 per cent of last 12 month sales). Reaching the optimal level of inventories (two months dispatches) will take time in our view," they stated.
The fourth quarter results of Yamama and Qassim cement showed improvement in selling prices as compared to Q3 2017 (more than 10 per cent on average). However, we don’t expect this improvement to continue given the tough market conditions.
After the announcement of Neom project and 2018 expansionary budget, cement stocks have jumped with the materials index rising more than 10 per cent, said the Al Rajhi Capital Research experts.
"For now, we remain neutral on the sector given the low demand, high inventories and price war in the sector." they added.-TradeArabia News Service
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