Federal Meeting: How It Affects the Saudi Market and Hail Cement Stock?

The federal meeting, or the Federal Open Market Committee (FOMC) meeting, represents a periodic gathering of the U.S. central bank (the Federal Reserve) to discuss and determine monetary policy for the United States. During these meetings, members discuss developments in the U.S. economy and decide on key interest rates (the federal funds rate) and other tools such as asset purchase programs or quantitative easing. The results of these meetings not only affect the U.S. economy but also extend their impacts to global markets, including emerging markets like Saudi Arabia, due to the central role of the U.S. dollar in the global financial system. Raising or lowering U.S. interest rates is a key indicator of global liquidity trends, determining the cost of borrowing and investing worldwide.

The Saudi economy is closely linked to U.S. monetary policy, primarily due to the peg of the Saudi riyal to the U.S. dollar. This peg often compels the Saudi Arabian Monetary Authority (SAMA) to follow the Federal Reserve's movements in interest rates to maintain exchange rate stability. When the U.S. Federal Reserve raises interest rates, SAMA is forced to take similar actions, leading to increased borrowing costs domestically. This alignment in monetary policy reflects on all economic activities in the Kingdom, from corporate financing and projects to real estate investment decisions. Additionally, changes in U.S. monetary policy lead to shifts in foreign capital flows into Saudi Arabia, as U.S. assets become more attractive when interest rates rise there.

U.S. interest rates play a pivotal role in shaping investor trends in the Saudi stock market (Tadawul). When the Federal Reserve raises interest rates, U.S. investment instruments such as bonds become more attractive in terms of yield, prompting some foreign investors to withdraw their liquidity from emerging markets and shift it to the United States. This often leads to decreased demand for Saudi stocks, particularly from foreign investors, negatively impacting market liquidity levels. Conversely, if the Federal Reserve keeps interest rates low or signals a future reduction, liquidity tends to flow towards higher-yielding markets like Saudi Arabia. Furthermore, these decisions affect investor confidence and expectations regarding the Saudi economy in general.

The Saudi cement sector is considered one of the key sectors closely linked to infrastructure and housing projects. It is influenced by local and global financial and economic policies. The market includes over ten listed companies, including Hail Cement (3001), competing to meet local demand directly affected by the Saudi government's plans under Vision 2030. Major challenges facing the sector include overproduction capacity, intense price competition, fluctuations in energy and fuel prices, and seasonal demand changes resulting from government support policies. Additionally, any change in interest rates affects the pace of housing and infrastructure projects, thus impacting the overall demand for cement.

Hail Cement Company is one of the medium-sized companies in the Saudi cement sector. The company was established to serve the Hail region and the north, focusing on meeting the needs of housing and infrastructure projects in those areas. The company's capital is approximately 700 million Saudi riyals, distributed over 70 million shares. The market capitalization of the company ranges between 560 and 700 million riyals, depending on price fluctuations. In recent years, the company has achieved annual revenues between 250 and 300 million riyals, with net profits ranging from 30 to 50 million riyals, reflecting a relatively low profit margin. Dividend distributions are moderate (2% to 4%), as the company seeks to maintain its liquidity amid market fluctuations.

The impact of the federal meeting on Hail Cement is indirect but tangible through several channels. First, raising U.S. interest rates leads to higher local interest rates, increasing borrowing costs for industrial companies like Hail Cement. This may limit the company's ability to finance expansions or new projects. Second, higher interest rates reduce real estate spending, the sector most closely linked to cement consumption, leading to decreased demand for the company's products. Third, liquidity fluctuations in emerging markets due to federal decisions affect investor confidence in listed companies, especially in cyclical sectors like cement. However, the most significant impact remains from local government policies and national infrastructure projects.

Recent financial data indicates that Hail Cement has faced challenges in maintaining high profitability levels, especially amid rising energy and raw material costs. The price-to-earnings ratio in 2024 was around 20–25 times, which is relatively high due to declining annual net profits. Dividend distributions ranged between 0.2 and 0.4 riyals per share, representing 2% to 4% of the share price. The debt-to-equity ratio is moderate (0.3 to 0.4), reflecting a cautious financing policy. The company has also developed production lines to enhance efficiency, yet its production capacity of 1.2 million tons annually places it in the medium-sized company category, making it more sensitive to fluctuations in local demand.

The price of Hail Cement stock fluctuated between 9 and 12 Saudi riyals in the first half of 2024, with selling pressures during market downturns, especially after the company announced a decline in quarterly profits. By mid-2024, the stock dropped to around 9.2 riyals, affected by weak sector demand and rising costs. At the beginning of 2025, the stock stabilized around 8–9 riyals amid ongoing challenges in the cement sector. The stock saw some recovery following announcements of maintenance projects and increased production efficiency, but performance remained tied to the overall sector movement. You can track the stock's performance directly from its page on Tadawul at this link: /stocks/3001/.

The Saudi cement sector includes major companies such as Yamama Cement (3032), Southern Cement (3004), Al-Jouf Cement (3030), and Tabuk Cement (3003). These companies boast higher production capacities and broader geographic coverage. Hail Cement relies more on regional demand in the northern part of the Kingdom, while larger companies benefit from substantial government contracts and market diversification. However, intense competition and periodic price wars exert continuous pressure on profit margins for all companies. Hail Cement's strengths lie in its proximity to northern projects like NEOM, but high logistical costs and competition make the company more susceptible to larger profit fluctuations compared to some of its competitors.

The Saudi economy is experiencing stable growth driven by increased oil revenues and Vision 2030 projects. GDP growth is projected to be between 3% and 4% in 2024, with moderate inflation (2% to 3%). However, globally tight monetary policy and rising local interest rates have affected sectors such as real estate and cement, where the pace of lending and private spending has slowed. Conversely, the government has maintained high spending levels on infrastructure projects, providing support to the cement sector. The balance between the federal impact and local policies determines the prospects for industrial companies in Saudi Arabia, with risks remaining tied to global market fluctuations.

Analysts expect continued high competitiveness in the Saudi cement sector, with declining profit margins due to oversupply and rising costs. Stability or a decrease in future U.S. interest rates may alleviate pressure on financing costs, but it will not resolve all sector challenges. Local demand remains supported by government projects, but any slowdown in these projects or continued high energy prices will negatively impact profits. Companies like Hail Cement are required to develop flexible strategies to cope with fluctuations, such as enhancing production efficiency or diversifying income sources.

Saudi cement companies are compelled to adopt conservative financial risk management policies, especially amid global interest rate fluctuations. These policies include monitoring debt levels, maintaining adequate liquidity, evaluating long-term contracts with the government, and controlling operational costs. Some companies also resort to hedging against fuel price fluctuations or diversifying suppliers. For Hail Cement, controlling spending, developing production lines, and improving logistics services are essential factors in enhancing competitiveness and reducing risks arising from changes in the business environment.

Monitoring the outcomes of federal meetings is essential for any investor interested in the Saudi market, given their structural impact on the financing environment and liquidity flows. The results of these meetings determine the trajectory of local interest rates and affect borrowing costs and liquidity in emerging markets. For equity investors, understanding federal decisions helps them assess risks and opportunities in sectors like cement, which are directly influenced by real estate and infrastructure spending. However, investors should rely on a comprehensive analysis of the local economic environment and not make investment decisions solely based on global monetary policy.