Saudi PMI at 54.0: growth continues, margins get squeezed
Saudi Arabia's non-oil sector grew for a seventh month, but costs are rising while selling prices soften. How a plant protects its margin.
Riyad Bank's Saudi Arabia PMI for the non-oil private sector eased to 54.0 in October 2026 from 55.3 in September. It is still the second-highest reading since February and the seventh straight month of expansion. Note that the index covers the whole non-oil private sector, not manufacturing alone.
The detail matters more than the headline: output growth accelerated on stronger domestic demand, new orders kept rising but more slowly, and export sales fell for the eighth month in a row because of shipping disruptions and higher freight and insurance costs.
The squeeze: costs up, selling prices softer
Input cost inflation rose to its highest since June, driven by freight, insurance, raw materials, energy and staff costs. Meanwhile selling-price inflation eased to a nine-month low because of competition and discounting. That is the definition of a margin squeeze: every unit sold carries less profit.
When you can't raise prices, the only lever left is lowering the cost per unit from inside the plant.
Inventory: a safety cushion with a price
The survey says firms kept purchasing strong to build inventories against supply disruptions. That is reasonable, but it ties up cash and hides problems. My advice is to make extra stock targeted, not general:
- ABC analysis: protect only critical, single-source or long-lead-time materials with extra stock.
- Calculated safety stock based on the actual variability of supplier lead times, not a guess.
- FEFO for materials with shelf life, so protective stock doesn't become waste.
Where the savings hide inside the plant
- Scrap: cutting scrap by one percentage point can offset a significant rise in raw material prices.
- Energy: measuring consumption during idle time and empty running often reveals quick wins.
- Cost of quality: a defect found by the customer costs many times more than one caught at the first station.
Takeaway: domestic demand in Saudi Arabia is still supportive, but this year's profit will go to plants that control unit cost, not just those that produce more.
Source: Trading Economics
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