Saudi cement sector's local sales volume was flat Y-o-Y in March 2016 at c5.8 million tonnes; 3% Y-o-Y growth in 1Q2016, driven mainly by growth in January and February that was likely helped by projects under construction the government is committed to finalise, in our view.   Local sales volume for covered stocks was flattish Y-o-Y in March 2016: Four of our covered stocks showed Y-o-Y volume growth in March; the highest growth came from Al Yamama (+13% Y-o-Y), followed by Al Jouf (+8%), Al Qassim (+5%), and Tabouk (+4%). Companies seeing lower Y-o-Y volumes were Eastern (-11%), Yanbu (-9%) and Southern (-5%), the rest were flattish.     We expect volumes to inch down 2% Y-o-Y in full-year 2016 (post 7% growth in 2015) on demand slowdown, affected by a cut in government spending, given weak oil prices. We assume gradual recovery starting in 2017 (+2%). Our assumption for 2016 was based on volume growth in early 2016, followed by a slowdown until early 2017 before a gradual recovery is witnessed. Ex-factory prices will likely remain under pressure in 2016 (below SAR240/tonne cap for several players), as companies offer discounts to defend market share or absorb transport cost (those located far from high demand areas).   On another note, Saudi government officials have reportedly pointed to setting guidelines for cement producers to obtain export licences. The conditions needed for cement producers to export include: i) being a licenced producer; ii) having sufficient cement supply in the market to cover local demand (as decided by the Ministry of Commerce and Industry); iii) having a minimum strategic inventory of clinker at 10% of annual production; and iv) the previously-imported clinker amount that enjoyed government subsidy cannot be used for exports, unless it had been imported for over a year. Also, the government will collect the difference between local and global energy prices (no clear guidance on the mechanism), where the Ministry of Commerce and Industry will have the final say on the allowance of exporting cement.   Allowing exports should benefit companies with idle capacity and located far from higher demand areas (western, central). It would most benefit companies in the North (Northern, Al Jouf, Tabuk), South (Southern, Najran), followed by those in the East (Eastern, Saudi), in our view. Almost all Saudi cement companies have excess amount of clinker balance far above the 10% level as per the export guidelines. The average market clinker balance (end of March 2016) represent c37% of 2015 clinker production, the only two companies below the 10% level are Arabian cement and Safwa cement (in the Western area). Positives: i) should improve sector utilisation; current excess supply and pressured demand has led some producers to halt production lines, and ii) ease pressure on selling prices that witnessed a drop over the last two years (below SAR240/tonne price cap) on price wars.   Challenges: i) competition from regional markets with excess capacity; ii) political tensions in main target markets (Yemen, Libya, Syria); and ii) sustainability of competitive edge as the government will adjust downwards the fuel subsidy for exporters as mentioned above in the export guidelines. (Tarek El-Shawarby)