Saudi Ceramic Continued success - Al Rajhi Capital

Saudi Ceramic
Construction & Materials –Industrial
1 August 2010
Opportunities foster optimism, few threats
Huge government projects will
boost the demand for ceramics
products
Imports have a competitive
advantage in innovative
designs
Demand is expected to be more
than 200mn m 2 by 2013
Booming construction market
Ceramic products including tiles, bathroom products and water heaters are essential parts of
modern buildings. This explains the high correlation between demand for ceramics and
construction markets. The Saudi government is constructing huge projects called economic
cities. There are also other big construction projects for the twelve newly created government
universities, and expansion projects for the existing universities. These projects are expected
to increase the demand for ceramic products and support the revenue growth.
Excellent quality, but lack of innovative designs
Saudi ceramics are considered high quality since their raw materials, mainly red clay, are
among the best in the world. However, the imported ceramics, especially the European, are
preferred by customers because of the variety of design that fits different people’s needs.
Some of the local companies are trying to overcome this obstacle by producing customised
orders where the customer selects his preferred design. Saudi ceramics are cheaper than the
European so they are attractive for low and middle class people.
Demand is exceeding supply
We expect demand for ceramic tiles to be more than 200mn m 2 by 2013 while the current
supply level is about 136mn m 2 . The demand for bathroom products is already exceeding the
quantity supplied. However, supply of water heaters exceeds demand which increases the
export percentage of locally manufactured heaters. Overall, the sales growth potential of
Saudi ceramic companies seems very clear.
Disclosures Please refer to the important disclosures at the back of this report. 4