Mega projects to drive recovery in cement demand in Saudi Arabia: SICO

Recovery in Saudi Arabia’s demand for cement depends on mega projects and, to an extent, on social housing projects, Bahrain-based SICO investment bank said in a report.

Several cement producers such as Tabuk Cement and Southern Cement have already signed export contracts to Yemen for small quantities, SICO said.

“Reconstruction of Yemen is a long-term opportunity for Saudi building materials companies,” it added.

The report also noted that the sector is currently facing two challenges, including too much supply on the medium-term, and lack of sufficient manpower in the construction sector.

“Pricing and margins are likely to remain volatile in the near term. Over the medium to longer term, producers located close to demand centers and with comparative cost advantages on the fuel side, could see margins sustain,” SICO said.

The lender maintained a “Neutral” rating on Saudi Cement and Qassim Cement’s stocks, and a “Buy” rating on Yanbu Cement.

It, however, revised its recommendation for Southern Cement to “Sell” from “Neutral”, while it downgraded Arabian Cement to “Neutral” instead of a “Buy” rating.

The firm initiated coverage on Saudi Ceramics at Neutral with a target price of SAR 22 per share.

The table below shows SICO’s recommendations for Saudi cement stocks under coverage: