Update on Saudi Arabia, May 2023

Update on Saudi Arabia, May 2023

Sinoma International Engineering was revealed this week as the winner of a contract to build a new production line at Southern Province Cement’s Jizan plant. The China-based engineering firm said that the US$330m contract was to build a full line, from limestone crushing to bagging, with an output of 5000t/day. The construction period is expected to take just over two years, suggesting a commissioning date in mid-2025 if work starts now. The project has been in the pipeline for a while with an announcement in mid-2021. It was previously reported that the new line is intended to replace the two existing production lines at the site once completed.

Other recent projects in the country include Yamama Cement’s plans to move its cement plant near Riyadh to a new location. Sinoma International Engineering was also selected as the main contractor in November 2022 for the US$220m project. The relocated line – using both old and new equipment – will have a production capacity of 10,000t/yr. Project duration was estimated at around two-and-a half years following financial contractual commitments. So the earliest this one might be completed is also mid-2025. Eastern Province Cement also started making moves to build a new major upgrade in March 2023 when it started the tendering process for a planned 10,000t/day production line at its Al Khursaniyah Plant. The intention is to replace some of the obsolete lines at the unit. The project dates back to 2015, when it was first announced.

The timing of these new projects is compelling given that sales by the local industry peaked in 2015. They declined in 2018 to a low of around 40Mt before stabilising at around 50Mt for the last three years. However, one trend to note is how clinker exports reached 7.1Mt in 2022, the highest figure in a decade, since export rules were relaxed in 2017. They have grown year-on-year since 2018 with the exception of 2020. Cement exports have been lower since 2013 hitting a high of 1.9Mt in 2019, although 2022 was nearly as good at 1.8Mt.

The other big news story from the local sector in 2023 was the US$37m fine that the General Authority for Competition (GAC) levied for price fixing in April 2023. 14 of the 17 main cement companies in the country were found to have broken local competition law following an investigation. Detail on specifically what happened is light, but the GAC said that it took exception to companies “controlling prices of commodities and services meant for sale by increasing, decreasing, fixing their prices or in any other manner detrimental to lawful competition.”

As ever with the Saudi construction market, government spending is expected to keep things buoyant. Although input and logistic costs have risen like everywhere else, energy costs have also risen. This, no doubt, is useful to a government planning on building a bunch of so-called ‘Giga’ projects. Local sales of cement may have dipped slightly in 2022 but building all these big new projects will require plenty of cement. A report by the SICO Bank in January 2023 forecast that local cement demand was expected to remain ‘flat’ in 2023 but that it would grow by 5% year-on-year in 2024. Interestingly, it added that demand from the tourism and exhibition sector would also fuel demand in the run-up to 2030 as various schemes connected to the ‘Giga’ projects reached fruition.

Each of the three projects detailed above are intended to replace existing capacity. This suggests that none of these companies expect the market to grow significantly anytime soon. These cement producers are likely to be focusing on improving efficiencies from their existing market share. Alongside this, exports of cement and clinker have grown, giving combined local and export sales that are similar to the market peak in 2015. Efficiency savings and adapting to a mature market appear to be the way forward for Saudi cement producers in the near-term.