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SAUDI ARABIA –

CONCRETE CONSTRUCTION INDUSTRY – CEMENT BASEDMATERIALS AND CIVIL INFRASTRUCTURE (CBM & CI)

Engr. Mohammed Al-NagadiPresident of Saudi Building Code National Committee (SBCNC)Deputy Minister, Ministry of Urban and Rural AffairsRiyadhKINGDOM OF SAUDI ARABIA

CBM-CI International Workshop, Karachi, Pakistan Engr. M. Al-Nagadi

ABSTRACT: Cement forms the cornerstone of the construction sector in the Kingdom of Saudi Arabia. Despite its relatively low price, cement constitutes a significant portion of the costs of constructing any building. Therefore, any increase in cement selling prices hasa considerable effect on a project’s costs and profitability.

The construction and building materials sector usually follows the growth in a country’sGDP, with the main drivers of demand being real estate, tourism and infrastructure projects.Industrial expansions also have an effect on the demand for cement. During expansionaryperiods, demand for building materials (including cement) tend to surge at a higher ratethan GDP growth, while an economic slowdown severely affects demand for buildingmaterials.

This paper provides insight into the cement and construction industries of the Kingdom of Saudi Arabia. It covers a period of several years with respect to cement production andconsumption. Various trends are highlighted, and a forecast for the general sector developmentin coming years is presented.

1. INTRODUCTION

The Kingdom of Saudi Arabia in its present form was made a reality through the relentlessstruggle of Abdul Aziz Ibn Saud. Saudi Arabia was inaugurated as a Kingdom in the year1932, with Ibn Saud installed as its first King. After 1932, major events and happeningsin the Kingdom are recorded in history.

The Kingdom of Saudi Arabia is located between latitude 16° north and 32° north andextends from 35° east to 55.6° east. The total area of the Kingdom is 2,149,690 sq. km witha population estimated (2007) at around 27.6 million. The country is largely hot and drywith temperatures ranging from 0°C in winters to 50°C in summers.

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Besides being the largest oil producer in the world, the Kingdom is gifted with vast natural

resources, such as gold, copper, potash, bauxite, iron ore and limestone. The last mentionedis the principal raw material used for the production of cement.

The GNP in 2006 was $374 billion with a per capita income of U.S. $13,800. Oil revenuescontribute to the GNP to an extent of about 45%. In other words, oil revenues and the trendof oil prices are the governing factors for the cement and construction industry in SaudiArabia.

2. CONSTRUCTION INDUSTRY

Saudi Arabia comprises the largest construction market in the Middle East, with multi-

billion dollar projects under way and many more in the planning stage by both the publicand private sectors.

Due to vast fluctuations in international oil prices, the construction industry has progressedin a cyclic manner. With high oil prices, there would be a boost to the construction industry,whereas a slump will prevail with low oil prices. However, between 1973 and 2001, peaksoccurred every 5-6 years. After 2001, there has been a steady growth in the Kingdom, whichhas resulted in the installation of a large number of cement factories to cater to the steadydemand in the construction sector.

The construction sector in the Kingdom accounts for 8% of GDP. The principal activitiesare located in the three main cities, Riyadh, Jeddah and Dammam, which account for 75%of the Kingdom’s construction activities. Factors that influence the future demand forcement include spending on infrastructure, schools, industrial, commercial and residentialproperty, etc.

The current strategy of the Saudi Arabian government is to diversify the economy from oildependence to other less cyclical industries and services sectors. There are also the domesticconsiderations of a growing population and the need to provide jobs to a sizeable and ever-increasing population. Alongside government initiatives, the government has opened thedoors for both private and public sector investment, including foreign investment in boththe social and industrial infrastructures. The construction activities in Saudi Arabia aresummarized in Table 1.

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Table 1 Construction activities in Saudi Arabia

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3. CEMENT INDUSTRY

Commercial cement production commenced in the Kingdom in 1956 with the establishmentof Arabian Cement Co. in Jeddah with a kiln capacity of 90,000 million tons/annum. Priorto this date, all cement requirements were met through imports.

The construction/cement industry in the Kingdom is a mature industry, having been inexistence for 50 years, and thus has experienced both the highs (boom demand growth) andthe lows (oversupply resulting in price wars).

During recent years (2002 onwards), the construction industry in the Kingdom has beenexperiencing what can only be described as a “boom growth” (+8% to +13% p.a.). Thegrowth is driven by number of factors including:

• Continued population growth (demand for new housing),• Ongoing government fiscal policy (sustained developments in education, health, etc.),•

Rising oil revenues (higher budget surplus),• Industrial sector growth (gas initiatives, petrochemical diversification, etc.),• Development of new sectors (IT, tourism, etc.) and• General investor speculation/perception (commercial properties, lettings, increased

incomes, high stock prices, etc.).

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For years, Saudi cement manufacturers were able to export their excess capacities, mainly

to other GCC countries and Africa. However, to accommodate the high transportation costsincurred, net selling prices for exported cement are usually lower than local sales, negativelyaffecting the exporting company’s profit margins. Figure 3.1 presents the net exports of Saudi companies over a five-year period.

CBM-CI International Workshop, Karachi, Pakistan Engr. M. Al-Nagadi

3.1 Cost of Production

The cement industry is one of the highest energy-intensive industries in the world, with fueland energy costs typically representing 30-40% of total production costs. With the highvolatility and current hikes in oil prices, most manufacturers are shifting to more stablelower-cost energy sources for their production facilities, such as natural gas and coal. Fuelprices in Saudi Arabia are relatively low and stable compared with other parts of the worldbecause they are driven by government control over the oil and gas sector. With such benefitaccruing to cement producers, rising oil prices give regional producers a competitiveadvantage over their global peers.

Raw material costs represent the second-largest percentage of cement manufacturers’ coststructures. With the abundance of these raw materials in most parts of the world, variances

across regions and companies depend on the operating efficiency of each producer relativeto its peers.

Figure 3.1 Quantity of net exports of Saudi Arabian cement

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3.2 Products

3.2.1 Portland Cement

Portland cement is classified into two types, Type I and Type V; both types are readilyavailable locally.

CBM-CI International Workshop, Karachi, Pakistan Engr. M. Al-Nagadi

• Type I – OrdinaryPortland Cement(OPC)

OPC is a general purpose Portland cement suitable for all usesand is the most common in the Kingdom. Its uses include themanufacture of ready mix, concrete blocks, pre-castings, pavements,reinforced concrete, pipes, etc., and most concrete structures inthe Kingdom

•

Type V – SulphateResistant PortlandCement (SRC)

SRC is sulphate-resisting cement.

3.2.2 Others

The two other specialized types of cement produced are:

• Pozzolan Cement This cement is used in manufacturing Pozzlan products and isonly produced by two local manufacturers, namely Inv 1329 YanbuCement Co. and Inv 1402 Tabuk Cement Co.

• Oil Cement This cement is designed specifically to meet Saudi Aramcospecifications for use within the oil industry. It is only producedby one local manufacturer, Inv 1306 Saudi Cement Co.

3.2.3 Market Shares

It is estimated that OPC constitutes 73% of total output, SRC is 20%, pozzlan cement 6%,and oil cement 1%. Bulk cement distribution constitutes 59% of sales; the balance of 41%is sold in bagged form. Bulk cement sales are distributed to cement traders, ready mixmanufacturers, cement block and pre-cast manufacturers, etc.

3.3 Raw Materials

The primary raw materials used for cement production are limestone, clay, chalk, marl and

others, significant quantities of which are continuously quarried to service the demand forcement. In the cement kiln, minerals are formed, giving cement its specific properties. Themain components are the oxides of calcium, which are provided mainly by limestone; marlor chalk; and silicon, aluminium and iron components as well as other elements that areprovided by clay and shale.

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Alternative materials have been sourced to substitute for traditional natural raw materials.

The industry currently uses large quantities of blast furnace slag, power station fly ash,silica fume, natural pozzolanas and limestone fines, mainly to substitute for natural rawmaterials in the production process. The use of these alternative materials has significantpositive environmental and economic benefits. The need to quarry primary raw materialsis reduced, energy consumption in production cement is cut, and overall reductions inemissions of dust, CO2 and acid gases are attained. In some applications, the performanceof concrete can be enhanced when portland cement clinker is complemented by thesematerials.

3.4 Energy

The main fossil fuels used in the cement industry are coal, petcoke, heavy oil, and naturalgas. Non-fossil ‘alternative’ fuels derived from industrial sources such as tires, waste oil,

plastics and solvents are commonly used as substitute fuels today. Use of alternative fuelsin cement kilns saves fossil fuels, reduces production costs, reduces emissions to the airand eliminates the need for disposal of slag and ash.

Cement manufacturing is an energy-intensive process. The specific thermal energy consumptionof a cement kiln varies between 3,000 and 7,500 million joules per ton of clinker, dependingon the basic process design of the plant. The major consumers of electrical energy in thecement manufacturing process are the mills and the large fans. The specific electrical energyconsumption typically ranges between 90 and 130 kWh per ton of cement.

With energy typically accounting for 30-40% of the production cost of cement, cementmanufacturers throughout the world have successfully concentrated significant efforts onimproving energy efficiency in recent decades. The specific energy consumption for the

production of cement clinker has been reduced by 30% since the 1970s. The continuedefforts over recent years to improve energy efficiency mean that there is little room forfurther improvement. However, efforts continue with regard to equipment design and processtechnology to further improve overall energy efficiency.

4. SECTOR GROWTH – CONSTRUCTION VS. CEMENT PRODUCTION

As described before, a cyclic trend has been observed in cement consumption in SaudiArabia. There were peaks every 5-6 years until the year 2001, when cement consumptionstarted to rise at the rate of 5-6%. After the year 2003, cement consumption increased by9.5%, and for the year 2006 and later, the demand expectation has even become higher.It is expected that the cement consumption in Saudi Arabia would increase by 10-15% perannum.

Table 2 shows the clinker and cement production to the year 2006 as actual and for 2007to 2010 as estimated. The table shows that from 2007 onwards the cement production sectorwill be growing at the rate of 20-25% per annum, which is much more than the demandexpectation of 10-15%.

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CBM-CI International Workshop, Karachi, Pakistan Engr. M. Al-Nagadi

   T  a   b   l  e   2

   C   l   i  n   k  e  r  a  n   d  c  e  m  e  n   t  p  r  o   d  u  c   t   i  o  n   i  n   S  a  u   d   i   A  r  a   b   i  a   f  o  r   t   h  e  y  e  a  r  s

   2   0   0   3  -   2   0   1   0 .

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Figure 4.1 Cement demand and supply project scenarios (2007 – 2011, in million tons).

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Figure 4.1 shows the projected demand scenarios of 10 and 15% and compares them with

the expected production. At 15%, the demand in 2010 would be more than 45 million tons,whereas at 10%, the demand would be almost 40 million tons.

CBM-CI International Workshop, Karachi, Pakistan Engr. M. Al-Nagadi

Comparing to the estimated cement production in the year 2010, it becomes quite clear thatthe cement supply in the Kingdom will eclipse the demand. Accordingly, it can be expectedthat there will be a lot of surplus cement available on the local market.

4.1 Impact of Cement Surplus

The only way to deal with the surplus cement is to export it. In the first quarter of 2007,709,000 tons of cement were exported, an increase of 54.5% compared to the first quarterof 2006. In 2007, Saudi Arabia is expected to export 3,000,000 tons of cement.

Thereafter, exports are expected to grow at the rate of 15-20% every year, largely due tothe high demand of cement in adjoining countries and low production costs in Saudi Arabia.

Figure 4.2 shows the export of cement at the rate of 20% annual increase for 2007-2010.Although the export figures are largely hypothetical and depend largely on the prevailingpolitical conditions in the adjoining country, it can still be expected that Saudi Arabia willbe in a better position to export cement than any other country in the region.

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The major factor governing the healthy export scenarios are the low fuel and electricityprices in Saudi Arabia, which form about 50% of the total manufacturing cost. Thisadvantage cannot be enjoyed in countries like India, Pakistan and Egypt.

4.2 Forecast beyond 2010

After 2010, cement production in the Kingdom is likely to remain stagnant. During thistime, the surplus stocks in the Kingdom will be consumed domestically or exported. Asoil prices are expected to remain high, cement consumption in the Kingdom will continueto increase at a steady rate. This factor will help to reduce the surplus clinker and cementstocks in the country.

5. CONCLUSION

The construction industry in Saudi Arabia is supported by a very healthy local cement sector,and therefore there are no impediments to its growth. Because of the low cost of production,cement prices in Saudi Arabia are among the lowest in the world and will become evenlower due to surplus cement available in the next few years. In addition, new and efficientcement manufacturing facilities will further decrease the cost of manufacturing.

The cement industry in Saudi Arabia is expected to easily be able to support the largenumber of expected sizeable construction projects in the region and is in the best positionto even export considerable quantities. In conclusion, the construction boom in Saudi Arabiacan be expected to continue over an extended period of time due to a very healthyinfrastructure.

CBM-CI International Workshop, Karachi, Pakistan Engr. M. Al-Nagadi

Figure 4.2 Cement exports from Saudi Arabia (2007 – 2011) in million tons.

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ACKNOWLEDGEMENTS

The author would like to thank Dr. Nasser F Akeel, General Manager and Member of theBoard of Riyadh Cement Company, and his colleague Naseer Uddin Siddiqui, AssistantGeneral Manager (Projects), for their support and input to this document. The author wouldalso to express gratitude to Mr. Herwart Pusch, IT Advisor from the German Agency forTechnical Cooperation (GTZ), for his help in finalizing the document.

REFERENCES

[1] “Municipality Statistics - 1426H” (Issue 56 of the municipal statistical year book), 2005 / 2006G, Kingdom of Saudi Arabia, Ministry of Municipal and Rural Affairs.

[2] “8th Municipal Development Plan, 2005 – 2009”, Kingdom of Saudi Arabia, Ministry of 

Planning & Ministry of Municipal and Rural Affairs, 2005[3] “Meed - Middle East Economic Digest”, magazine & web site (http://www.meed.com/) 2006 / 07

[4] Dr. Naseer F. Akeel, Naseer Uddin Siddiqui, “Report on the Cement and Construction Industryin Saudi Arabia” (Cement production and consumption scenario), Riyadh Cement Co., Kingdomof Saudi Arabia, 2007

[5] Saumen Karkun, Holtec, Cement Review Magazine, May 2006[6] Saudi Arabia Article, Gulf Construction Magazine May 2006[7] World Almanac 2007[8] Madawi Al-Rasheed, History of Saudi Arabia.

CBM-CI International Workshop, Karachi, Pakistan Engr. M. Al-Nagadi