Yanbu Cement has resumed the operation of three furnaces after a suspension cost the company 12.7 million Saudi riyals.
The three lines were stopped on April 12 because of "fuel unavailability", the company said yesterday in a statement to the Saudi bourse website. The lines have a combined capacity of 4,000 tonnes, representing 32 per cent of output capacity, the statement added.
To make matters worse for the company, last week a fire broke out at its fifth production line, which is currently under construction. Yanbu has been selling its production from the fourth kiln, which has a capacity of 8,500 tonnes a day. While the resumption of production and investment in increased capacity may been seen as positive in the short term, analysts are cautious because it comes at a time when the outlook of the sector is clouded by oversupply of cement and a government ban on exports, which has been in effect since 2008.
Yanbu has declined by 4.5 per cent since its peak on January 26. Shares closed up slightly at 44.60 riyals yesterday
"We view this as negative," said Umar Faruqui, an analyst at Global Investment House, based in Kuwait. He said total supply of cement for the kingdom for the year was expected to be about 53.8 million tonnes, while demand was expected to reach 48.2 million tonnes. There will be 5 million tonnes of oversupply in cement for the year, Mr Faruqui said.
He has a "hold" rating on the stock with a price target of 41.5 riyals. "In our view Yanbu is fairly valued, with not much upside in the stock," he said.
Yanbu last month reported an 18 per cent decline in profits for the quarter to 101.1m riyals compared with the same period last year, blaming lower sales. The company distributed a full-year dividend of 2 riyals a share for last year, down from 3 riyals in 2009.
"The increase in competition in the Western Region due to the cement export ban and the increase in cement capacity has taken its toll on the company," Mr Faruqui said.