Heading: Cement Producers in Saudi Arabia’s Central Region Brace for Price War
A recent report from AlJazira Capital suggests that a price war is likely to break out among cement producers in Saudi Arabia’s central region. This is due to the boom in giga-projects, which are predominantly located in the central area of the Kingdom. As a result, companies from all over the country have entered the region, leading to increased competition.
Heading: Central Region’s Appeal for Cement Producers
The central region of Saudi Arabia is not only home to major development projects but is also logistically feasible and accessible for most firms in the Kingdom. This has further attracted external players to venture into the region. The report highlights that the competition in the central region may escalate into a price war, with companies potentially cutting prices on a larger scale to retain their market share. This is expected to result in lower average selling prices starting from the second quarter of 2023.
Heading: Pressure on Cement Prices Despite Housing Boom
Despite a housing boom that drove up cement demand in 2022, the first quarter of 2023 saw average selling prices for cement under pressure. Prices fell from SR186 to SR174.3 per ton. The report suggests that this anticipated drop in prices is a consequence of the increased competition in the central region.
Heading: High Clinker Inventory Levels
The report reveals that local cement sales accounted for only 89 percent of total clinker production between January 2022 and May 2023. This has led to a surge in the sector’s clinker inventory level, reaching 37.6 tons by the end of May 2023. Clinker, which is a mixture of limestone and minerals transformed by heat, is considered the backbone of cement production.
Heading: Forecasted Decline in Cement Sales and Increase in Inventories
According to AlJazira Capital, local cement sales are expected to decline by 9 percent annually to 46.3 tons in 2023. At the same time, inventories are projected to reach 36.9 tons, representing a 5.5 percent annual increase. These forecasts indicate the challenges faced by the cement sector in the coming year.
Heading: Antitrust Authority Penalizes Cement Companies for Price Manipulation
In April 2023, Saudi Arabia’s antitrust authority imposed a collective fine of SR140 million on 14 cement companies for colluding to raise cement prices in the Kingdom. Each producer was fined SR10 million for manipulating prices to benefit themselves, which violated Article 4 of the Competition Law. The law prohibits practices, agreements, or contracts among competing firms that control the prices of goods and services intended for sale, thereby harming the market.
Heading: Penalized Cement Companies
The penalized companies include Al Safwa Cement Co., City Cement Co., Al-Jouf Cement Co., Umm Al-Qura Co., and Qassim Cement Co. Other firms that received fines were Najran Cement Co., Southern Province Cement Co., United Cement Industrial Co., Yamama Cement Co., Riyadh Cement Co., Arabian Cement Co., Saudi Cement Co., Hail Cement Co., and Yanbu Cement Co.
In conclusion, the central region of Saudi Arabia is witnessing increased competition among cement producers due to the giga-projects boom. This is expected to lead to a price war, resulting in lower average selling prices. Despite a housing boom, cement prices have remained under pressure. The sector is also facing challenges with high clinker inventory levels and projected declines in sales. The recent penalties imposed on cement companies for price manipulation highlight the need for fair competition in the market.