Although the outlook for the construction industry in Saudi Arabia is currently positive, recent austerity measures imposed by the government to soften the blow imparted by sliding oil prices could cause the tide to turn. With the possibility of the Kingdom of Saudi Arabia cutting back on non-essential expenses high against this backdrop, the move will almost certainly have a cascading effect on the cement industry in Saudi Arabia.
Since the government imposed restrictions on the export of cement from Saudi Arabia to rein in mounting cement prices in 2008, the dynamics of the cement market in the Kingdom of Saudi Arabia have undergone several alterations. Another reason behind these export restrictions were that the government wanted to ensure a steady supply of cement for ambitious infrastructure projects, an appreciable number of which were backed by the government. While the move resulted in cement prices being brought under control and the domestic needs being met, these export bans have, in the long run, caused a glut in the cement market in Saudi Arabia. Faced with a situation such as this, Saudi is now reportedly considering easing the export restrictions that were brought into effect in 2008.
According to a report by Transparency Market Research, in volume terms, in 2013, the cement industry in the Kingdom of Saudi Arabia had an estimated production capacity of 55,700.0 kilo tons. The market intelligence firm predicts that by 2020, this capacity will rise substantially to 78,258.8 kilo tons, translating to a compounded annual growth rate (CAGR) of 5.4% from 2014 through 2020. In terms of revenue, the market for cement in Saudi Arabia had a valuation of US$3.59 bn as of 2013.
As the cement market in Saudi Arabia braces for yet another phase of change, here is what investors and stakeholders can expect over the next four years:
Since the government imposed restrictions on the export of cement from Saudi Arabia to rein in mounting cement prices in 2008, the dynamics of the cement market in the Kingdom of Saudi Arabia have undergone several alterations. Another reason behind these export restrictions were that the government wanted to ensure a steady supply of cement for ambitious infrastructure projects, an appreciable number of which were backed by the government. While the move resulted in cement prices being brought under control and the domestic needs being met, these export bans have, in the long run, caused a glut in the cement market in Saudi Arabia. Faced with a situation such as this, Saudi is now reportedly considering easing the export restrictions that were brought into effect in 2008.
According to a report by Transparency Market Research, in volume terms, in 2013, the cement industry in the Kingdom of Saudi Arabia had an estimated production capacity of 55,700.0 kilo tons. The market intelligence firm predicts that by 2020, this capacity will rise substantially to 78,258.8 kilo tons, translating to a compounded annual growth rate (CAGR) of 5.4% from 2014 through 2020. In terms of revenue, the market for cement in Saudi Arabia had a valuation of US$3.59 bn as of 2013.
As the cement market in Saudi Arabia braces for yet another phase of change, here is what investors and stakeholders can expect over the next four years:
- In 2013, the highest volumes of cement were channelled into infrastructure development in the Kingdom of Saudi Arabia. Expressed in terms of percentage, the infrastructure development segment accounted for over 50% of the Saudi Arabia cement market by application in 2013.
- Nearly 50% of all demand for cement in the Kingdom of Saudi Arabia came from the construction industry as of 2013. Since many of these infrastructure projects are funded by the state in keeping with the objectives of the Ninth Development Plan, the demand for cement is expected to remain steady. However, a slump in oil prices is likely to cause some disruption in construction activity in the Kingdom of Saudi Arabia, leading to intermittent interruptions in the demand for cement from the construction industry.
- Projects such as the construction of health cities, residential units, and economic cities in Saudi Arabia could help sustain the demand for cement in the near future as the influx of migrants continues to remain steady for the most part.
- The demand for cement was the highest in the western and central regions in the Kingdom of Saudi Arabia as of 2013. The eastern and northern regions also exhibit demand for cement thanks to a number of upcoming residential and commercial projects planned here – a trend that will likely continue in the foreseeable future.
Capacity expansion has remained the focus of most cement manufacturers in Saudi Arabia for the last few years. However, further investments were put on hold to counter the recent overcapacity in the cement market in Saudi Arabia. Now that the government is planning to lift export bans, capacity expansion could again be a growth strategy for leaders.
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