RIYADH: A price war between cement producers is likely to break out in Saudi Arabia’s central region on the back of the giga-projects boom, according to a recent report from AlJazira Capital.
Since the majority of the huge ongoing developments in the Kingdom are located in its center, companies from across the country have ventured into the region, causing competition to soar.
The report added that the central area is also logistically more feasible and accessible for the majority of the firms in the Kingdom, further attracting external players.
“We believe that the competition in the central region might evolve into a price war, and companies could start cutting prices on a larger scale to retain the market share in the region, which will be visible in lower average selling prices starting from the second quarter of 2023,” the report said.
During the first quarter, the average selling prices for cement stayed under pressure, falling to SR174.3 ($46.47) per ton from SR186 the previous quarter.
The anticipated drop in prices comes despite the housing boom that pushed cement demand upward in 2022, according to the report.
Local cement sales only accounted for 89 percent of total clinker production between January 2022 and May 2023, reported AlJazira Capital.
As a result, the sector’s overall clinker inventory level surged to 37.6 tons by the end of May of this year.
Clinker is considered the backbone of cement production and is a mixture of limestone and minerals transformed by heat.
According to the consultancy, local cement sales are expected to drop by 9 percent annually to 46.3 tons this year, whereas inventories will reach 36.9 tons, up 5.5 percent annually.
By the end of 2023, the businesses covered by AlJazira Capital are forecast to record a decrease of 9.1 percent year over year in exports.
Saudi Arabia’s antitrust authority penalized 14 cement companies with a collective fine of SR140 million for colluding to raise cement prices in the Kingdom in April 2023.
The General Authority for Competition imposed an SR10 million fine on each producer for manipulating the cement prices to benefit themselves, infringing Article 4 of the Competition Law.
The law prohibited practices, agreements, or contracts among competing firms that lead to controlling the prices of goods and services intended for sale by increasing or decreasing them to harm the market.
The penalized companies included Al Safwa Cement Co., City Cement Co., and Al-Jouf Cement Co., as well as Umm Al-Qura Co. and Qassim Cement Co.
Other firms to receive fines were Najran Cement Co., Southern Province Cement Co., and United Cement Industrial Co., with Yamama Cement Co., Riyadh Cement Co. and Arabian Cement Co. also being punished.
Saudi Cement Co., Hail Cement Co. and Yanbu Cement Co. also received fines, revealed the release.
