• Home
• News Article

Cement Crises in Arab Countries Underscore Need for Sector Development

Beirut (APD) - Cement crises in several Arab countries are again looming this summer, partly because of the continued wave in demand from developments and construction projects of all sizes and partly because of government domination over national cement industries in some countries.

The region's mismatch between supply and demand increased greatly in the past two years, as Arab countries in general and oil-based economies in particular entered a high-growth cycle of real estate development.

"The ongoing and intended investments of MENA countries into real estate mega-project currently stand at mind-blowing levels of over $387 billion in comparison to their combined GDP of $804 billion - a 48% ratio," said a real estate industry insight report by business intelligence provider, Zawya, published last month.

Consumption of cement in the MENA region, estimated at just under 115 million tons in 2003, has increased at double-digit percentage rates in many countries of the region. In recent years, total demand for cement in the Gulf region grew three times faster than global demand, according to industry studies.

"The Arab world currently produces around 117 million to 120 million tons of cement while the nominal capacity is 148 million tons. By 2010, the Arab world will be able to produce around 200 million tons of cement and this is due to the increase in demand that the real estate sector is witnessing," Ahmad Al Rousan, secretary general of the Damascus-based Arab Union for Cement and Building Materials, told APD.

In 2005, cement shortages across many Middle Eastern countries created supply bottlenecks, ballooning prices, and, in some cases, black-market profiteering.

While new capacity building in cement manufacture began in response to the demand surge, the short-term outlook is marked by concerns of continued shortages and distorted market situations.

Moreover, protective tariffs and total or partial government control over national cement sectors exist in countries that include Jordan and Qatar as well as Syria, Oman and Yemen, also implying further market misalignments.

A review of latest market developments and supply conditions in several Middle Eastern countries demonstrates the continued pressures on the region's cement sector.

Jordan
Jordan is still experiencing a sharp increase in cement prices due to technical problems in the plant of the Jordan Cement Factories Company (JCFC) which led to supply shortage in the past three months. In parallel, steep demand recently lifted the price per ton to JD 125 ($176) compared to JD 74 ($104) in the same period of 2005.

JCFC controls over 97% of Jordan's cement and clinker production while the state-owned Arab Company for White Cement Industry ( ACWCI ) accounts for the rest.

Another reason for the increase in prices is the high cost of energy used in cement production. For this reason, Jordan is looking into using oil shale as an alternative fuel source since it has oil shale reserves of around 40 million tons.

Last month the Jordanian ministry of industry and trade decreased customs tax on cement imports from 25% to 10% and allowed JCFC to import cement from Egypt in order to meet local demand, a report by the Export and Finance Bank noted on April 18.

JCFC is planning to increase its production capacity from 4.4 million tons to 5.5 million tons per year by 2008.

Libya
Similar problems are facing the Libyan cement industry which could not cope with increased cement demand.

"One of the main obstacles is our ageing production lines, which are in need of renovation, replacement and maintenance. We need some form of cooperation with international companies in the cement industry in order to increase our production capacity and to modernize with the introduction of new technologies and training of human resources," said Hassan Hamed Bokzam, secretary of the Libyan Cement Company .

The Libyan government is trying to develop the country's cement production and called for the increase of capacities at the two existing cement companies in two recent meetings.

The proposal called for the privatization of the two companies and to modernize the current production lines. For the Arabian Cement Company, the aim is to reach a total production capacity of 6.53 million tons per year (tpy) distributed over its plants in Zaltan (3.2 million tpy), Labda (1 million), Zleitan (2 million), Souk El Khamis (1 million), and al Mourakeb (330,000 tpy).

As to the second company, the government plans to increase Libyan Cement Company 's capacity to 4.5 million tpy, up from current production capacities for 2.8 million tpy at its three plants.

Saudi Arabia
A Saudi cement crisis seems to exist on local levels and especially in the Jazan Province close to the border with Yemen. Even though Saudi Arabia is the largest producer of cement in the Arab world with an over 50% stake in the GCC cement production of more than 51 million tons (2004 estimates), some provinces are still facing cement shortages due to heavy exporting from certain cement plants.

"Jazan plant exports around 1,200 tons of cement per day to Yemen while our trucks are waiting for days to load. Thus, the price per one bag of cement increased by 83.3% to reach SR 22.00 compared to SR 12.00 in a month time because of shifting supply of cement from the Southern Province Cement Company's plant in Jazan," said Ibrahim Attiya, owner of a ready mix cement company in Bicha, a region close to Jazan.

Qatar
In Qatar, the country is open for investors to establish cement plants but up till the end of 2005 the country's sole domestic supplier was the state-owned Qatar National Cement Company . Its output capacity amounts to 7,000 tons of cement per day while the country's demand stands at 11,000.

It is hoped that the establishment of a of QR 800 million Gulf Cement Company, as a private clinker production firm with a projected 5,000 tons per day, will help Qatar in meeting its demand in the coming years especially with implementation of several major projects like the four million square meters Pearl Qatar project and the 35 million square meters Lusail Development project and the 1.2 million square meters Al Waab City .

Lebanon
Lebanon, one of the region's few countries with oversupply in cement production, can satisfy domestic demand and export to countries like Syria and Iraq.

" Holcim 's exports account for 35% to 40% of its total production capacity where 20 to 25% is shipped to Syria while the rest is exported to Iraq. The Lebanese market consumed around 2.7 million tons of cement in 2005 while it exported around 2.3 million tons," development manager of Holcim Liban , Jamil Bou Haroun told APD.

Bou Haroun said that the company has no plans to export to other countries like Jordan and Qatar because Syria and Iraq are their main targets since the two countries are witnessing a boom in their real estate sector and developmental projects are on the rise.

Holcim Liban is the country's major cement producer and an affiliate of the worldwide Holcim Group. Other Lebanese cement manufacturers said that their markets and outlook remained unchanged.

While Holcim has no plans to increase production capacity in the near future, the company would invest in improving and modernizing their facilities, he added.

Yemen
Yemen ceased its tight reign over its cement sector by allowing Saudi investors to establish new cement plants. According to the ministry of industry and trade, current Yemeni cement production by its state-owned firms (which stood at 1.57 million tons in 2004) only covers 45% of local market needs.

In the past three months, three projects were announced that would increase Yemen's cement production through a new cement plant and upgrading projects of two existing plants. Added cement production capacities under the projects would amount to over one million tons per year and total investments would be worth more than $1 billion. The new projects are joint ventures between Yemeni, Chinese and Saudi investors.

Capacities on the Rise
While cement production is known as a highly cyclical business, investors and manufacturing groups in the region are busy implementing capacity increases and planning more cement plants.

Demand forecasts are positive especially where infrastructure, housing, and tourism-related development initiatives are being pursued in countries like Morocco, Saudi Arabia and Syria. In the Levant and North Africa, big projects are newly on the agendas of major developers, the likes of Dubai-based Emaar Properties, Dubai Holding, Kuwait-based M A Kharafi Group, and MAF Holding.

Backed by their growth in the oil-based economies, these and many other large groups recently started tapping new investment opportunities in countries like Morocco, Egypt, Syria and Jordan, announcing large and mega-sized developments there.

The recent flow of investments from these conglomerates into the region emphasizes the need to increase production capacity of cement in these countries and establish new plants. This need is underscored by continued strong demand in the Gulf region, especially since Zawya's recent industry insight report demonstrated that with 115 ongoing and new real estate mega-projects in 13 Middle Eastern countries, the region-wide construction boom shows no signs of abating anywhere.

As to countries with surplus capacities like Egypt and Lebanon, this boom in development is triggering cement manufacturers to increase their exports in order to cash in on high cement prices in countries like Iraq, Jordan, Yemen and Qatar. [TS]

Analysis by Nadim Issa, APD Staff Writer in Beirut

© APD (Arab Press Digest) 2006