Federal Meeting and Its Impact on the Saudi Market and Hail Cement Stock

The term 'Federal Meeting' refers to the periodic meetings of the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve, typically held eight times a year. These meetings aim to review economic conditions such as inflation rates, unemployment, and economic growth, and then make decisions regarding interest rates and other monetary policy tools. The importance of these decisions extends beyond the U.S. economy to impact global markets, as the U.S. dollar is the world's primary reserve currency. At each meeting, the Federal Reserve issues a statement outlining its future directions, often followed by a press conference from Chairman Jerome Powell to explain the decisions. Investors and analysts worldwide closely monitor these meetings as they determine the environment of returns and risks for financial assets, directly affecting capital flows and global exchange rates. In the Saudi context, the importance of the Federal Meeting increases due to the riyal's peg to the dollar, prompting SAMA to align its monetary policies with the Federal Reserve to ensure currency stability and local investment attractiveness.

The Saudi financial market is particularly affected by the Federal Meeting's decisions due to the close relationship between the Saudi riyal and the U.S. dollar. When the Federal Reserve raises interest rates, SAMA often follows suit by increasing local interest rates to maintain the riyal's attractiveness and avoid capital outflows. This leads to higher borrowing costs locally, which may impact companies' investment or expansion plans. Furthermore, Federal decisions influence investor sentiment, as monetary tightening tends to attract liquidity towards U.S. assets and reduce flows to emerging markets like Saudi Arabia. Conversely, if the Federal Reserve lowers interest rates, liquidity may return to emerging markets, enhancing the Saudi market's performance and increasing interest in stocks. Additionally, oil prices, which form the basis of the Saudi economy, may be affected by global growth expectations resulting from Federal policies, adding another dimension to the impact of these meetings on the economy and local financial markets.

In 2024, the Federal Reserve continued its monetary tightening policy, maintaining the benchmark interest rates at elevated levels of 5.00%-5.25% to combat inflationary pressures. According to officials, a gradual rate cut was not ruled out in the second half of 2024 if inflation continued to decline. By mid-2024, the U.S. inflation rate stabilized around 3%, prompting the Federal Reserve to signal the possibility of easing in 2025 with expectations of a rate cut of about 1%. This trend reflected in global markets, as expectations began to shift towards increased liquidity in emerging markets, including Saudi Arabia. For the Saudi stock market, the TASI index recorded a moderate increase ranging from 5-8% during the first half of 2024, supported by continued growth in local sectors despite rising interest rates. These recent digital indicators reflect the Saudi market's interaction with U.S. monetary policy and highlight the importance of investors keeping up with developments from the Federal Meeting.

The Saudi Arabian Monetary Authority (SAMA) typically follows the Federal Reserve's movements regarding interest rates due to the riyal's peg to the dollar. In 2024, SAMA maintained its key interest rates at high levels (3.95% for lending and 3.25% for deposits) in line with Federal policy, which reinforced the stability of the local currency and the riyal's attractiveness against the dollar. The rise in local interest rates reflected on the cost of financing for individuals and companies, making loans more expensive, which may delay some investment projects or reduce the pace of expansion in sectors heavily reliant on financing, such as real estate and construction. At the same time, higher interest rates enhanced returns on savings and bank deposits, encouraging some investors to prefer fixed-income instruments over stocks, especially in sectors most affected by borrowing costs. This dynamic illustrates how the impact of the Federal Meeting on local interest rates translates into changes in investor behavior and the Saudi economy as a whole.

Hail Cement stock (3001) is considered a mid-cap stock in the Saudi cement sector, and its financial performance reflects the developments in the sector and the macroeconomy. At the end of 2023, the stock was trading around 11.5 SAR, with slight fluctuations during the first half of 2024 ranging between 10.5 and 12.0 SAR. The company's market capitalization reached approximately 1.38 billion SAR, based on a capital of 1.2 billion SAR and a number of shares exceeding 100 million. The price-to-earnings (P/E) ratio was about 12, which is an acceptable level compared to the sector average ranging from 10 to 14. Regarding cash distributions, the company announced a distribution of 0.42 SAR per share in 2022, equivalent to a cash yield of about 3.8% based on the current stock price. These indicators reflect the company's ability to maintain financial stability and relatively attractive distributions, benefiting from operational efficiency and geographical location. However, the company's results remain tied to sector developments, production costs, and local and global interest rate policies.

The cement sector is a strategic pillar of the Saudi economy, directly linked to urban development and major projects under Vision 2030. The sector includes more than ten major companies competing in a local market estimated to consume about 80 million tons annually, while total production capacity exceeds 100 million tons, creating a surplus directed towards export. Among the main challenges facing the sector are: high production capacity relative to demand, fluctuations in energy and raw material prices, and changes in regulatory policies related to the environment and emissions. In terms of prices, cement prices stabilized between 10-12 SAR per bag in 2024-2025, driven by major infrastructure projects and maintaining local demand. Profitability-wise, companies that managed to update production lines and reduce costs (including Hail Cement) maintained good profit margins compared to some traditional competitors. The ability to export and product diversification remain crucial factors in determining companies' capacity to face future challenges.

Hail Cement faces strong competition from major companies such as Saudi Cement (3010), Southern Cement (3391), and United Cement Company (3002), in addition to other regional companies. Hail Cement is distinguished by its geographical location near the Duba port, facilitating export operations and reducing transportation costs. The company has also focused on updating production lines and enhancing operational efficiency, reflected in a net profit margin estimated between 15-18% in recent years. However, Hail Cement remains less diversified than some competitors who have multiple production lines. The company's market share is estimated at about 5%, with plans to expand exports to compensate for market saturation. In the face of intense price competition, the company's ability to maintain profitability relies on controlling costs and leveraging its geographical location while closely monitoring competitors' movements and local and regional demand developments.

Federal decisions regarding interest rates have direct and indirect effects on the Saudi cement sector and Hail Cement stock (3001). First, monetary policies affect borrowing costs; rising interest rates increase financing costs for companies, which may delay expansion plans and pressure profit margins. Second, these policies impact overall demand, as raising interest rates typically slows down infrastructure and real estate projects, reducing demand for cement. Third, changes in interest rates affect investor sentiment and capital flows into the Saudi market. Conversely, easing monetary policies (lowering interest rates) can stimulate demand and encourage investment, which may positively reflect on cement sales and companies' profits in the sector. For Hail Cement, any improvement in the interest rate environment or increased government spending on major projects may support the company's performance and stock in the upcoming period.

Oil prices during the period 2024-2025 witnessed relative stability between 70-90 USD per barrel, positively reflecting on the Kingdom's economy and its balance of payments. Given that the Saudi economy heavily relies on oil revenues, price stability provides a favorable environment for continued funding of major projects, including construction and infrastructure projects that support the cement sector. On the other hand, fluctuations in commodity prices such as iron and energy directly affect production costs in cement companies, including Hail Cement. Federal policies play an indirect role in this dynamic, as they influence global growth expectations and thus demand for oil and commodities. Therefore, any shift towards monetary easing by the Federal Reserve supports continued global demand for oil, which benefits the Saudi economy and construction industry sectors.

The Saudi market index (TASI) recorded a moderately positive performance during the first half of 2024, supported by stable oil prices and growth in key local sectors. The petrochemical sector saw a notable increase driven by new projects and rising global demand for renewable energy. The cement sector benefited from major infrastructure projects launched by the government under Vision 2030, including housing projects and airport expansions. In late 2024, the Saudi government announced new infrastructure initiatives expected to gradually raise demand for cement during 2025-2026. For Hail Cement, the company did not announce significant production expansions by the end of 2024, but it continues to update production lines and increase efficiency, with indications of a feasibility study for adding a new production line in the future.

Hail Cement stock (3001) experienced slight fluctuations recently, with its price ranging between 10.5 and 12.0 SAR in the first half of 2024. The company's financial results for 2023 showed a net profit increase of approximately 5% compared to 2022, maintaining a net profit margin around 15%. This performance is attributed to operational efficiency and stability in production costs. In terms of liquidity and trading, there were no signs of excessive buying or selling saturation, as the Relative Strength Index (RSI) remained in a moderate range. The stock benefited from investor confidence in management and stable distribution policies, along with government support for infrastructure projects. However, the stock's outlook remains contingent on developments in interest rates, local demand for cement, and competition within the sector.

Among the notable developments at the end of 2024 and the beginning of 2025 was the Federal Reserve's decision to keep interest rates unchanged, with indications of a potential cut if inflation continues to decline. Saudi foreign reserves remained high (around 700 billion SAR), reflecting the robustness of the Saudi economy and its ability to withstand international fluctuations. In the cement sector, Hail Cement did not announce new production expansions but confirmed ongoing updates to machinery and operational efficiency. Regarding forecasts, analysts expect the company to benefit from new infrastructure projects announced under Vision 2030, with the possibility of studying production line expansions if demand continues to grow. Additionally, credit rating agencies' reports indicated stability in the economic climate in the Kingdom, which bolstered investor confidence in the market and local stocks.

Monitoring Federal Meetings is particularly important for Saudi investors due to their direct impact on the local investment environment. The Federal's directions significantly determine local interest rate trends, affecting financing costs, savings returns, and capital flows. These directions also influence market sentiment and investment trends between stocks and fixed-income instruments. Furthermore, Federal policies affect oil prices and global economic expectations, which reflect on vital sectors in Saudi Arabia, primarily the cement sector. Therefore, investors are advised to follow the outcomes of Federal Meetings, read official reports, and analyze local and international market analyses to understand the economic environment and growth forecasts without relying solely on short-term speculation.

Despite the relative stability in the Saudi cement sector, there are numerous risks and cautions that investors should consider. First, the sector is sensitive to the economic cycle; a slowdown in growth or rising interest rates may lead to a decline in cement demand. Second, excess production capacity in the local market creates competitive pressure on prices and profit margins. Third, fluctuations in energy and raw material prices directly affect production costs and company profitability. Fourth, regulatory changes, such as environmental restrictions or increases in compliance costs, may raise operating expenses. For Hail Cement, having only one production line makes it more susceptible to market fluctuations and less capable of rapid expansion compared to larger companies. Therefore, it is always advisable to review financial reports and analyze risks carefully, and not to make investment decisions without thorough study.