Cement plant is strong by domestic fundamentals

Cement plant is strong by domestic fundamentals

The Zurich-based group said in May it would take out costs and improve efficiency to boost profit by at least 1.5 billion Swiss francs ($1.5 billion) by the end of 2014.

The Saudi cement sector is fuelled by strong domestic fundamentals, namely:

(1) the government’s continued high expenditure on physical and social infrastructure, driven by positive oil price movements, and buoyed by a young demographic structure;

(2) relatively low fuel and raw material costs as a result of the subsidized power/ gas, and minimal royalty mining fees, sustaining domestic producers’ competitive advantage;

(3) new market entrants, leading to an influx in capacity dispersed geographically in areas of concentrated demand, the National Commercial Bank said in its latest "Saudi Economic Review" released Tuesday.
Analysts at Bank Vontobel said that while Holcim's overall outlook was almost unchanged, the contribution of Europe compared with North America was three times bigger, making this effectively a "reduction of the outlook". Holcim stock was down 0.4 percent at 0923 GMT, after initially falling more than 2 percent. The Stoxx 600 European construction index was down 0.7 percent.

Second-quarter net profit rose 9.2 percent to 379 million Swiss francs on slightly higher sales of 5.6 billion francs, which was chiefly due to strong demand from emerging markets in Asia, Latin America and Russia. Analysts in a Reuters poll had forecast on average a net profit of 377 million Swiss francs and sales of 5.69 billion francs.

The size of the current cement market can be determined using the Kingdom’s construction activity as a proxy. Given the recent spike in construction, it is important to differentiate between core demand and transient demand for cement. Core is identified as the 2002-2006 CAGR demand for cement, which was equivalent to 5 percent.

This period is generally representative of a natural business cycle for the Kingdom, excluding the intermittent construction boom. Transient is that generated from ongoing mega-project construction activity which we have identified as commencing in 2007.
Looking ahead, Holcim said it will "accord cost management the closest attention" and that planned spending would result in an additional operating income of at least 150 million francs this year.
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