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Saudi construction 'to see strong growth'

Riyadh, October 25, 2011

Jadwa Investment sees strong growth in the Saudi construction sector from the kingdom's massive building plans but predicts a slowdown in the key export-driven petrochemicals industry as global growth weakens.

 'It will be the theme of following government spending so I think building and construction, industrial investment and cement are areas that can not fail to benefit from the huge government investment and spending program,' Jadwa's head of research Paul Gamble told the Reuters Middle East Investment Summit.

Saudi Arabia, boosted by high oil prices, has pledged to spend an estimated $130 billion on housing and other social measures. It is also spending $400 billion on infrastructure projects in the five years to 2013, making the construction and building sector among the most appealing in the country for Gamble over the next few years.

With a growing population of 27 million people, the country is currently facing a shortage in housing and will need around 1.65 million new homes by 2015, according to a report from Banque Saudi Fransi in March. 'That will be there not just through 2012 but go on for probably the next five to six years. They, for us, are pretty attractive sectors,' Gamble said.

Gamble said he expected the petrochemical sector's growth to come off because it was dependent on product prices holding up.

'Petrochemicals are slightly more difficult because they are driven by product prices. The global economy is still fairly weak and with our assumption that oil prices will be falling...
that would have an impact on revenues for (them).'       

'Product prices could fall and arguably in a tough environment you will not see much growth in sales, so their profit growth will not be as good as it has been this year,' Gamble said.

The petrochemical sector in Saudi Arabia has long been regarded as one of the most attractive as it has a competitive advantage over its global rivals for having access to cheap feedstock. Eighty percent of companies' revenues are from exports.

Last week, Saudi Basic Industries (Sabic), the world's largest chemical producer by market value, posted a 54 percent rise in its third-quarter net profit on higher product prices and strong global demand. 

Gamble forecast that oil prices would decline toward the end of this year and into 2012, predicting an average for West Texas Intermediate of $82 a barrel next year, down from $90 in 2011.

'Concerns about how long Libyan output would be off has been one of the psychological factors that kept oil prices high,' Gamble said.     

'I would see (WTI and Brent) falling over the remainder of the year, largely on supply factors,' he said. Oil prices rose earlier this year as pro-democracy Arab uprisings swept through Middle Eastern countries, toppling leaders in Tunisia, Egypt and most recently Libya. Syria and Yemen are still facing violent protests.

As a result Saudi Arabia increased its production twice this year: in March after turmoil in Libya raised concerns of supply shortages, and again in June after an OPEC meeting with the aim of lowering oil prices.

Libya's production is now around 350,000 barrels per day and is seen increasing up to 600,000 bpd by the end of the year, Gamble said, which raises concern about oversupply in a global economy slowed by debt worries in Europe and the United States.

'There are concerns about demand growth, obviously the global economy slowed down a lot,' Gamble said. 'If what is happening in Europe spreads through to Asia I can see less oil demand at a time of more supply so that will put some downward pressure on prices.' - Reuters




Tags: Construction | Saudi | petrochemical | Jadwa |

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