NCB Capital lowered its annual Saudi cement sales target for last year to 53 million tonnes as labour shortages in the kingdom hit the sector.

Powered by automated translation

The negative impact of labour shortages on Saudi Arabia’s cement industry will remain in the short term, a leading bank from the kingdom has warned.

NCB Capital lowered its annual cement sales target for last year to 53 million tonnes from a previous estimate of 56 million tonnes.

“We believe this slowdown will continue for the next few months and gradually improve as more legal workers arrive to the kingdom,” it said in a recent research report.

After a strong start to last year, cement producers struggled after the government in November intensified its expulsion of two million illegal expatriate labourers. With many of those workers forming the backbone of the building industry, the crackdown led to suspension of construction projects and delays in the transportation of cement.

Cement sales in November slipped 15 per cent from their level a year earlier, the largest year-on-year decline on record.

NCB said it expected demand to be kept in check for the next four to six months.

Zamil Al Mugren, the chairman of the Saudi committee for national cement companies, said last week sales growth last year would slide to about 3 per cent, down from 10 per cent the year before. Sales by the kingdom’s 15 cement firms dipped by nearly 30 per cent after the enforcement of the amnesty in May, Mr Al Mugren was quoted as saying in the Arabic language daily newspaper Aleqtisadiah.

The downturn is taking a toll on cement stocks. They were the worst performers on the Saudi Arabian bourse last month, with Yanbu Cement falling by 5.6 per cent to 66.75 Saudi riyals and Saudi Cement also dropping by 5.6 to 101 riyals.

Levels of inventory have accelerated, rising to a record high of 13 million tonnes in November. Despite the excess stock, officials have said some of the kingdom’s 15 cement firms are planning to commission new plants.

But NCB, the investment arm of the kingdom’s biggest bank by assets, said that longer term, the outlook remained positive.

“Over the long-term, outlook remains strong, supported by the increase in construction contract awards,” the report said.

It pointed to a 52 per cent year-on-year rise in contract awards for the first nine months of the year to US$6.72 billion.

Saudi Arabia is building a number of big projects, including a metro in Riyadh and the expansion of King Abdulaziz International Airport in Jeddah. Still, capital spending by the government this year is budgeted to slow for the first time in 12 years as the government seeks to rein in public expenditure.

tarnold@thenational.ae