Saudi cement firms raise output for $500bn Neom City project

Source: ArabianBusiness.com

Tabuk Cement and Hail Cement, both located in Saudi Arabia's northern region, have increased output almost every month this year

At least two Saudi cement makers are churning out production to cash in on the birth of a futuristic, $500 billion city called Neom, according to analysts tracking the industry.

Tabuk Cement and Hail Cement, both located in the desert kingdom’s northern region, have increased output almost every month this year while most of their 15 peers produced less, according to data compiled by Bloomberg.

Output for the two companies for the six months ending in June surged 20 percent and 55 percent, respectively, compared with the same period last year - several times faster than for their biggest peer, Saudi Cement Co.

Crown Prince Mohammed Bin Salman announced plans last year to build Neom, promising a hyper-high-tech lifestyle unavailable in today’s Saudi Arabia, as he seeks to diversify the economy away from oil. Ambitious projects like Neom, which is to encompass a total area of 26,500 sq km - larger than Rwanda or Belize, figure prominently in the Saudi transformation strategy known as Vision 2030.

At the time of the prince’s announcement, the government said Neom would be backed by more than $500 billion in state and private funds. Shares of cement makers surged then.

Hail and Tabuk are beating volume trends as “some contracts were awarded in the Neom area earlier this year,” said Anoop Fernandes, an analyst at Manama, Bahrain-based investment bank SICO. “Both companies are yet to report, so we have to see what the level of pricing is. Tabuk’s average selling price was down 23 percent year-over-year in the first quarter.”

Saudi cement companies are waging a price war, and the industry’s performance has been disappointing this year because project awards have been“extremely subdued,” Fernandes said. Adding to the pressure: The government is trimming subsidies and costs are rising as the country struggles to develop new industries and sources of revenue.

“Tabuk and Hail are comparatively the main beneficiaries of Neom project,” said Sameer Kattiparambil, an analyst at the research arm of EFG-Hermes Holding in Muscat, Oman.

“Elsewhere in the country, cement demand has been consistently slower, lower by 13 percent year-to-date, as the construction sector activities continue to stay weak.” He expects cement demand to pick up early next year.