Saudi Arabia’s cement sector local sales volumes dropped c39% Y-o-Y in June 2017 to c2.1mn tonnes, while dropping c.54% M-o-M due to seasonality as the month of Ramadan and vacations fell entirely in the month of June, according to Yamama Cement’s monthly report. For our coverage universe, local sales volumes fell c.44% Y-o-Y, driven by weak demand. The clinker inventory reached its highest level of 31.2mn tonnes by end of June (vs. 28.5mn in May). Demand slowdown and pilling of clinker inventory have led the government to reduce the export tariff fees for cement companies by 50%; in mid-March 2017, the government imposed export fees of SAR85-135 per tonne for the exported cement, leading export sale volumes to Bahrain (no export ban to Bahrain) to drop significantly by 20% Y-o-Y in 1Q17, all of which happened in March (-55% Y-o-Y), and there were no exports since April-17 until today. The only companies exporting to Bahrain are Saudi, Eastern and Riyadh Cement (insignificant amounts). In addition, companies that have obtained export licences over the past period refrained from using the export licence, given the high export fees. According to market intelligence, some companies believe that any export fees could still hinder export activities, despite lowering export fees 50%; hence, they wish for no export fees. In our view, there are still many challenges facing export such as regional oversupply, high competition and geopolitical tension. 

Analyst: Tarek El-Shawarby.