Saudi cement companies likely to cut production

Riyadh: Most Saudi cement companies are considering a halt on some production lines and cutting on production staff, sources told Gulf News.

"The continuing export ban amid signs of a construction slowdown by mid 2009 has forced cement companies to take drastic steps to avoid huge losses in profits," according to sources at the cement companies.

Officials admitted that these steps will be difficult for the companies. "However, we have no other alternative unless the government is ready to lift the ban on exports of cement. In the current scenario, we are forced to halt some production lines and this will naturally result in job losses for some workers," the sources said, adding that this is the only way to cut production costs and stem a downward trend in profits.

In June last year, the Saudi Arabian government slapped a ban on exports of cement to remove supply bottlenecks amid a surge in demand both within the country and from neighbouring countries.

The sources, who requested anonymity, warned of a price war in the cement sector with an anticipated drop in demand. "The export ban caused a whopping increase in the reserves of cement, which is expected to rise to above 21 million tonnes by the end of the current year," the sources said, pointing out to a 50 per cent fall in the profits at most of the cement companies during the period from the end of the second quarter until the end of the fourth quarter of 2008.

Profits of Yamama Cement Company, one of the leading Saudi cement companies, dropped to 610.8 million Saudi riyals (Dh596 million), which translates to 4.52 riyals per share) by the end of 2008, a 16 per cent fall when compared with the same period in the previous year.

The company attributed the fall in profit to a number of factors, including export ban, the entry of two new players - Riyadh Cement and Madinah Cement - and rising maintenance costs. The company's profit plummeted 32 per cent in the fourth quarter of 2008 against the same period in 2007.

Tabuk Cement, the smallest cement company in the country, also announced a 29 per cent fall in its profits in the fourth quarter.