(MENAFN- The Peninsula)
By Mohammad Shoeb
DOHA: Saudi Arabia";s decision to lift the export ban on cement may help meeting Qatar";s growing appetite for the primary material. Qatar, which has lined-up multi-billion dollar construction projects in the run-up to Fifa 2022, is a major importer of Saudi cement.
Official data suggest that the peak demand for cement from Qatar";s thriving construction and infrastructure industries is expected to reach 57 million tonnes by 2017.
The Saudi government imposed a ban on cement exports in 2008 to push prices down and accommodate demand from large government-funded infrastructure projects, although some companies were allowed to export at prices lower than those in the local market.
Qatar, Yemen, Egypt, Jordan, the UAE, Bahrain, East Africa, and Iraq are seen as potential export destinations for Saudi cement producers, according to a latest report by Arqaam Capital, the emerging markets investment bank.
The much anticipated lifting of the Saudi export ban on cement may allow little relief for the local cement producers due to competitive prices in these countries, noted the Arqaam";s research report.
In the context of each market";s prevailing selling prices, which range between an equivalent of SR230-400 per tonne, the only viable export destinations would be Yemen, Iraq, and Jordan, on a Freight On Board (FOB) price basis, including export taxes. The subset that makes the cut of exporters to these regions are Southern Cement, Najran, Tabuk, Al Jouf, and Northern Cement.
Qatar has two domestic producers of cement namely Qatar National Cement Company (QNCC) and Al Khalij.
And QNCC, with a domestic market share of around 70 percent, whose production capacity was expected to rise to around 6.6mn tonnes a year by the end of 2015.
In November 2013, the firm (QNCC) announced a fifth cement plant that could produce between 5,000 and 7,500 tonnes of clicker a day.
The initiative was part of the company";s strategy to meet Qatar";s burgeoning demand for cement for over the next 10 years.
With the launch of the new plant, QNCC";s total production capacity will jump to 18,500 tonne clinker per day. Cement grinding capacity is expected to reach about 22,000 tonnes per day.
According to market analysts strong infrastructure spending by Qatar government on infrastructure development will continue to boost demand for the cement sector.
With huge number of projects, including Doha Metro, stadiums, roads and flyovers, savage and severs in the pipeline, demand for cement is expected to shoot up.
Average cement demand in Qatar during 2013-15 stood at around 5.5 million tonnes per annum (mtpa), higher than the government estimate of 2.5-4mtpa.
With many big projects still in the progress, cement demand is expected to pick up further to 10.0mtpa, according to reports.
On the prospects of Saudi cement exports, Mohammed Kamal, Executive Director, Equity Research at Arqaam Capital said: “Export volumes would likely be capped at 20 percent of output and possibly subjected to an export tax.
The net effect should be margins erosion, which partly dilutes the Earning Per Share growth that results from the expansion in headline sales. In our view, the cash margin per tonnes of exported cement can fall by 40 percent to SR60-100 per tonne, depending on the region it is produced in and the market exported to. The incentives to export then are the depletion of clinker inventory, or the utilisation of idle production lines.”The Peninsula