a Saudi Cement Company

January 2012
KMEFIC Research
Equity Analysis Report
The construction sector is foreseen to remain active and will continue to be the major driver for
the cement industry. According to Business Monitor International (BMI),, the construction sector is
expected to grow at an average rate of 4% (in real terms) over the years 2012 – 2015 due to a
healthy project pipeline and strong government support. Lastly, the 2022 World Cup being hosted
in Qatar will stimulate demand for cement as well as other construction materials. Saudi Arabia
stands to benefit from this increased demand as it borders Qatar (the only country that does),
putting Saudi cement companies in a good position to meet the excess demand of cement.
Porter’s Five Forces Model
Below is Porter’s Five Forces Model applied to the Saudi cement industry in order to assess its
attractiveness.
Figure 4 – Porters’ Five Forces Model
Suppliers'
power:
HIGH
Threat of
new
entrants:
MODERATE
Cement
Industry
Threat of
substitutes:
VERY LOW
Business
rivalry:
MODERATE
Customers'
power:
MODERATE
Source: KMEFIC Research
Threat of New Entrants: The biggest entry barriers to the Saudi cement industry are plant and
equipment costs, in addition to carbonic energy requirements of the cement mills and plants. Entry
barriers are slightly lowered by the fact that the Saudi government provides energy subsidies to
cement companies, low interest rate loans from the Saudi Industrial Development Fund (SIDF), and
quarries at low prices as aid to the industry. However, these subsidies do not completely offset the
huge costs required for venturing into the industry and hence, the threat of new entrants to the
Saudi cement industry is moderate.
Suppliers’ Power: Saudi cement companies are under low pressure in terms of production costs
due to the abundance of limestone reserves in addition to the energy subsidies provided by the
government. . However, the government remains the most important supplier to the cement
industry in Saudi Arabia, thus making suppliers’ power high.
Yamama Saudi Cement Co.
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