Saudi Industry: Developments in the Industrial Sector and Financial Market

The Saudi industrial sector is characterized by a clear diversity in activities and branches, encompassing both traditional and modern industries that integrate to form a robust economic system. Among the prominent branches of the Saudi industry are petrochemicals, metals, cement and building materials, and other manufacturing industries. Petrochemicals lead the forefront, spearheaded by SABIC and its affiliates, dominating a significant share in Gulf and global markets, producing essential materials such as ethylene and polypropylene used in countless industries. The metals sector is led by a giant like Ma'aden, which has expanded into the production of phosphate, gold, copper, and aluminum, contributing to diversifying the Kingdom's exports and increasing non-oil revenues. The cement and building materials industry holds particular importance due to the massive local demand resulting from housing and urban development projects. Statistics indicate that cement production capacity exceeded 60 million tons annually in 2023, distributed across approximately 15 major plants covering all regions of the Kingdom. Additionally, other manufacturing industries are growing rapidly, as the Kingdom works to localize the production of food, plastics, simple electronics, and automotive components, supported by government incentives and financing programs. It is noteworthy that the Saudi government focuses on developing industrial infrastructure, facilitating licensing procedures, and providing advanced industrial zones, such as the industrial cities in Jubail and Yanbu. These efforts, alongside initiatives like the National Industrial Development Program, have contributed to accelerating the pace of manufacturing and increasing the competitiveness of Saudi products regionally and internationally. This diversity in the industrial sector is one of the most important factors supporting the Kingdom's strategy to achieve sustainable economic growth and reduce dependence on the oil sector.

Industry occupies a central position within Vision 2030, which aims to build a diversified and sustainable economy that does not primarily rely on oil revenues. Through the National Industrial Development and Logistics Program (NIDLP), the Kingdom seeks to raise the contribution of the manufacturing sector to the GDP to unprecedented levels, focusing on localizing technologies, supporting innovation, and expanding the base of industrial exports. The vision has set clear goals to increase the number of factories, raise production capacity, and stimulate investments from both the public and private sectors by providing incentives such as tax exemptions, financing facilities, and developing industrial infrastructure. For example, the Saudi Industrial Development Fund has allocated billions of riyals to finance new industrial projects, particularly in the fields of plastics, metals, and automotive parts. Additionally, the government has launched initiatives to expedite the issuance of industrial licenses and provide special zones to attract foreign and local investments. Major projects such as NEOM, the Red Sea, and new economic cities emerge as key drivers for demand for Saudi industrial products, as these projects require massive quantities of cement, steel, and other construction materials. Furthermore, Vision 2030 focuses on enhancing industrial exports through trade agreements with regional and global countries and developing support programs for industrial exports. The Ministry of Industry and Mineral Resources works closely with the private sector to achieve the vision's goals by supporting industrial innovation, developing national human competencies, and localizing modern technologies. As a result of these efforts, the Saudi industrial sector has become more competitive and responsive to global opportunities and challenges, enhancing its position as a fundamental pillar in the future of the national economy.

The Saudi financial market (Tadawul) relies on the Global Industry Classification Standard (GICS) to categorize listed companies, providing a clear regulatory framework that facilitates tracking the performance of various sectors and comparing similar companies. Within this classification, cement and metals companies are listed under the Basic Materials sector, while companies with other manufacturing or service activities are classified under the Industrials or Consumer Goods sectors, depending on their core activity. For example, companies such as Hail Cement, Yamama, Najran, and Eastern Cement fall under the Basic Materials sector, while manufacturers of electrical appliances and vehicles are listed in the Industrials sector. This classification aids in market analysis, allowing investors to monitor the performance of industrial companies within sector indices such as the Basic Materials Sector Index, reflecting sectoral changes quickly and transparently. It also enables comparison of the performance of Saudi companies with their global counterparts within the same sector, enhancing the attractiveness of the Saudi market to international investors. In recent years, the Saudi financial market has made updates to sector classifications to more accurately reflect the transformation of industrial companies and the diversity of their activities in light of major projects and economic transformations. This organization allows investors and investment funds to build diversified portfolios based on clear industrial standards, while also assisting regulatory bodies in monitoring the performance of industrial sectors and providing accurate reports on their contribution to the national economy. Overall, the structure of the industrial sector in Tadawul reflects the Kingdom's commitment to adopting global best practices and enhancing transparency and comparability in the financial market.

Saudi cement companies experienced varied performance in 2024, recording significant growth in their combined profits during the first nine months, reaching approximately 2 billion riyals, driven by rising local demand associated with large housing and new infrastructure projects. In the third quarter alone, profits of Saudi cement companies reached 648.3 million riyals, reflecting strong demand during that period. However, growth was not sustainable throughout the year; results for the second quarter of 2024 showed a decline in profits by 11% from expectations, due to price pressures and increased market supply, prompting some companies to reduce prices to boost sales and face intense competition. Saudi cement companies face cyclical challenges, including market saturation, rising operational costs, and fluctuating energy prices, alongside regional competition from cement companies in Gulf Cooperation Council countries. Nevertheless, the continuation of major government projects such as NEOM and Red Sea cities ensures sustained demand for cement and building materials. Companies like Yamama Cement, Eastern Cement, and Hail Cement stand out as key players in the market, with variations in market share and the geographic areas they serve. The Saudi government is keen on monitoring the market and supporting its stability through regulatory policies and encouraging exports to ensure the sector remains capable of meeting local demand and maintaining its regional competitiveness. Amid these dynamics, Saudi cement companies are required to develop more sustainable and efficient products to keep pace with changing market demands and achieve sustainable profits.

Hail Cement Company (symbol 3001) is one of the medium-sized companies in the Saudi cement sector, located in the northwestern region to cover the northern and central markets. The company was established in the early 2000s to meet the growing regional demand for cement, particularly with the rise of housing and infrastructure projects in the northern areas. Financially, the company has faced challenges in recent years, with a net profit of approximately 24.6 million riyals for 2023, while it achieved profits of 3.2 million riyals in the last quarter of the same year, reflecting relative stability in profitability despite market pressures. In the first quarter of 2024, the company's profits decreased by about 19% to reach 15 million riyals, affected by demand fluctuations and price declines. The company's share price during 2024 ranges between 15 to 18 riyals, with a market value estimated at around 3 to 5 billion riyals, based on the number of outstanding shares and market price. The price-to-earnings ratio (P/E) ranges between 13 and 14 times, which is considered acceptable within the cement sector, although it is lower than desired growth rates. Regarding cash distributions, the company has announced relatively low distributions in recent years, with an annual yield ranging between 1% and 3% of the share price, reflecting profitability challenges and cost pressures. Despite fierce competition from major companies like Yamama Cement and Eastern Cement, Hail Cement maintains a geographic advantage in the northern markets, providing it with some stability against national market fluctuations. The company exemplifies the challenges and opportunities facing medium-sized cement companies in the Saudi market.

The Saudi cement market is characterized by a large number of independent companies competing for market share through competitive pricing, product quality, and expanding distribution networks. Among the prominent players in the market are Yamama Cement (3011), Eastern Cement (3010), Najran Cement (3050), Makkah Cement (3051), and Southern Cement (3020), along with other companies such as Arabian Cement and Saudi Cement. Each company focuses on a specific geographic area to meet local demand, leading to a relatively balanced distribution of production capacity across the Kingdom. For instance, Yamama Cement dominates the Riyadh area and western Kingdom, while Eastern Cement dominates the eastern region, and Najran Cement covers the southwest. This geographic distribution reduces the risks of congestion in one area and provides relative stability in cement supplies for housing and infrastructure projects. However, the market suffers from relative saturation in supply, especially with rapid increases in production capacity in recent years, leading to periodic pressures on prices and profit margins. Companies also compete for government contracts and major infrastructure projects, where government support for housing and construction is a key factor in demand growth. On the other hand, production costs, energy prices, and logistical conditions affect profit margins, forcing some companies to invest in improving operational efficiency and developing sustainable products. At the same time, some companies, such as Hail Cement, have begun adopting export strategies to Gulf and North African markets to leverage production surplus, while the government continues to monitor and regulate the market to ensure stability and meet local demand.

In addition to cement, the metals and petrochemicals sectors form two main pillars of the non-oil Saudi industry, making significant contributions to GDP and exports. The metals sector is led by Ma'aden, which has significantly expanded its production of phosphate, gold, silver, aluminum, and copper, and is considered one of the largest listed companies in the Saudi financial market. In 2024, mining companies witnessed a rise in profits driven by the global increase in metal prices and rising local demand for raw materials for infrastructure projects. The petrochemicals sector is led by companies like SABIC and Chevron-Sumitomo, dominating the production of polyethylene, polypropylene, and other chemical products used in various industries. The Kingdom is one of the largest producers of petrochemicals in the world, benefiting from abundant hydrocarbon resources and advanced infrastructure in Jubail and Yanbu. These two industries contribute to diversifying national income sources, as the Kingdom's exports increasingly rely on mineral and chemical products alongside oil. Additionally, these sectors represent a central goal in Vision 2030, with efforts underway to increase technology localization, expand supply chains, and stimulate foreign and local investments through specialized industrial zones and financial incentives. The metals and chemicals industries face challenges related to global price fluctuations, rising energy costs, and environmental sustainability requirements, but ongoing government support and national development programs provide a solid foundation for future growth and enhance their competitiveness regionally and internationally.

The Saudi government plays a pivotal role in developing the national industry through regulatory policies and financial and legislative incentives aimed at creating an attractive investment environment and enhancing the competitiveness of local products. The Ministry of Industry and Mineral Resources oversees the implementation of manufacturing strategies and works in coordination with the General Investment Authority and the Saudi Industrial Development Fund to provide comprehensive support for new and existing factories. These efforts include providing tax exemptions for emerging factories, financing facilities with soft loans, and offering advanced industrial zones equipped with necessary infrastructure. On the regulatory front, the government has expedited the issuance of industrial licenses and simplified administrative procedures for local and foreign investors, resulting in a noticeable increase in the number of factories and industrial projects in recent years. Programs have also been launched to develop national competencies in industrial fields, focusing on technical and vocational training to ensure the availability of qualified workforce. The government is also supporting industrial exports through financing and credit guarantee programs, facilitating access to regional and global markets through bilateral and multilateral trade agreements. In terms of sustainability, regulatory bodies have adopted strict policies to comply with environmental standards and encouraged companies to adopt clean production technologies and reduce carbon emissions. These efforts align with Vision 2030, which places industry at the heart of economic transformation, aiming to raise its contribution to GDP, increase job opportunities for citizens, and achieve self-sufficiency in many essential industrial products.

Despite the significant progress made by the Saudi industry, the sector faces a range of complex challenges that require innovative solutions and flexible policies. At the forefront of these challenges is the saturation of the local market in some industries, such as cement, where increased production capacity has led to a surplus in supply and periodic pressures on prices and profit margins. Strong competition among local companies, along with regional competition from Gulf Cooperation Council companies, affects the ability of Saudi companies to maintain their market share and achieve sustainable growth. The industry also faces challenges related to rising energy costs, especially as the Kingdom gradually moves towards reviewing energy prices to support financial sustainability, leading to increased operational costs for some companies. Additionally, new environmental standards impose pressures on companies to adopt more efficient and lower carbon-emitting production technologies, requiring substantial investments in research and development and upgrading production lines. Internationally, Saudi companies are exposed to fluctuations in global raw material prices, especially in the metals and petrochemicals sector, affecting profitability and increasing market risks. The industry also faces challenges related to developing national competencies in technical and engineering fields, as reliance on foreign labor remains high in some sectors. To address these challenges, the Saudi government continues to implement supportive policies such as providing financial incentives, supporting innovation, and developing industrial infrastructure, alongside enhancing partnerships with the private sector to localize technologies and elevate the international competitiveness of Saudi products.

The Saudi industry offers promising opportunities for growth and expansion in the coming years, driven by major projects and technological transformations aligned with the goals of Vision 2030. Among these opportunities is the expansion of smart city projects such as NEOM, the Red Sea, and AlUla, which require massive investments in infrastructure and construction materials, thereby enhancing sustainable demand for cement, steel, and other industrial products. Renewable energy projects and the transition to a green economy also present significant opportunities for engineering and electronics industries, as the Kingdom seeks to localize the manufacturing of solar panels, batteries, and components for renewable energy stations. In the metals sector, growth opportunities arise from exploiting untapped mineral wealth, such as lithium and copper, to meet the growing global demand for vital raw materials for technology and energy industries. The Kingdom's focus on localizing the automotive and electronics industries, through partnerships with global companies, fosters industrial innovation and the transfer of modern technologies. Government support programs, such as the Industrial Development Fund and export support programs, provide strong incentives for investment in new factories and expanding production capacity. The Saudi government prioritizes environmental sustainability, opening the door for the development of eco-friendly industrial products, such as low-carbon cement and clean technologies. Finally, trade agreements that the Kingdom enters into with African and Asian countries open new markets for Saudi industrial exports, increasing the competitiveness of national products internationally.

The Saudi industrial sector is witnessing an increasing transformation towards innovation and sustainability, driven by government trends, strict environmental regulations, and changes in market preferences. Saudi industrial companies, especially in the fields of cement, metals, and petrochemicals, are adopting modern production technologies that reduce energy consumption and carbon emissions. For instance, some cement companies have started developing low-carbon emission products and utilizing alternative fuels and carbon capture technologies within their production lines, in line with the national energy strategy and sustainable development. In the metals sector, the focus is on improving mining efficiency and utilizing techniques to recover rare metals from industrial waste. In petrochemicals, companies are moving towards developing high-value chemical products and innovating sustainable plastic solutions. The Saudi government supports these efforts through research and development funding programs and facilitates partnerships with research centers and universities to transfer knowledge and localize technologies. Corporate social responsibility programs encourage investment in environmental projects and the development of national skills in advanced industrial fields. Digitalization and digital transformation are playing an increasing role in enhancing industrial operational efficiency, as modern factories rely on smart control systems, big data analysis, and artificial intelligence applications to improve productivity and reduce costs. Overall, innovation and sustainability are central themes to enhance the Saudi industry's ability to compete locally and globally and achieve sustainable economic development goals.

Financial indicators are a fundamental tool for evaluating the performance of listed industrial companies in the Saudi financial market. Taking Hail Cement Company as an example, we note that its net profit in 2023 was approximately 24.6 million riyals, with quarterly profits of 3.2 million riyals in the last quarter of the same year. In the first quarter of 2024, the company recorded a profit decline of about 19% to reach 15 million riyals, reflecting market challenges and price pressures. The company's share price in 2024 is around 15-18 riyals, with a market value estimated between 3 and 5 billion riyals, based on the number of outstanding shares, which is approximately 200 million shares. The price-to-earnings ratio (P/E) ranges between 13 and 14 times, which is relatively acceptable in the cement sector, although it indicates limited growth in profitability. Regarding cash distributions, the company announced distributions of 0.03 riyals per share in late 2023, representing an annual yield of about 0.2%, which is relatively low compared to some competing companies in the sector. These figures reveal the impact of market saturation and cost pressures on the financial performance of medium-sized companies in the industrial sector, also emphasizing the importance of monitoring financial indicators such as net profit, operating profitability, earnings per share, and cash distribution rates in analyzing the performance of listed companies. Those interested in the cement sector should follow quarterly and annual financial reports of companies, in addition to economic news affecting energy and raw material prices, to form an accurate picture of market dynamics and future profitability trends.

In 2024, the Saudi industry witnessed significant developments in new investments and export policies, aligning with the goals of Vision 2030. The government announced support for major industrial projects, such as a massive cement plant in the Al-Jawf region, aimed at increasing production capacity and meeting growing demand in the north. Some cement and basic materials companies have also developed more sustainable production lines, such as low-carbon cement, in response to new environmental standards. On the export front, the government launched initiatives to facilitate the export of industrial products to regional and international markets, especially Gulf countries and North Africa, through trade agreements and logistical and financial support programs. The Ministry of Industry is working to expedite the issuance of industrial licenses and increase financial allocations for lending programs, focusing on updating existing factories and encouraging automation. In the metals and petrochemicals sector, major companies recorded profit increases during the first half of 2024, driven by rising global metal prices and improved local demand. Some companies have also announced partnerships with international firms to develop new products and transfer technology, enhancing the competitiveness of the Saudi industry internationally. The government continues to monitor and regulate the market to ensure price stability and meet local demand, focusing on supporting innovation and increasing industrial exports as key drivers of sustainable economic growth.

As we enter 2025, the Saudi industrial sector continues its journey of transformation and modernization, supported by Vision 2030 initiatives and major projects launched by the government. The focus is expected to remain on diversifying non-oil industries, such as electronics manufacturing, renewable energy components, and advanced engineering industries, alongside enhancing the capabilities of the cement and metals sectors. The importance of developing industries linked to the green economy, such as low-carbon cement production and sustainable plastic products, is in response to local and international market demands for environmental protection. At the same time, investments are expected to continue in expanding production capacity and improving operational efficiency, with increased reliance on digital technologies and artificial intelligence in modern factories. On the policy front, the government will remain committed to enhancing the industrial investment environment by facilitating procedures, supporting financing, and encouraging public-private partnerships. The Kingdom is also expected to continue its efforts to open new markets for industrial exports through trade agreements and logistical and financial support programs. Forecasts indicate that the contribution of the manufacturing sector to GDP will continue to grow, increasing job opportunities and localizing national competencies in various industrial sectors. In light of these trends, the Saudi industrial sector remains a central pillar in the Kingdom's strategy to achieve sustainable economic development and enhance its global competitiveness.