With the possibility 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 the Kingdom.
Since the government imposed restrictions on the export of cement from Saudi to rein in mounting cement prices in 2008, the dynamics of the cement market 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.
Capacity expansion has remained the focus of most cement manufacturers in Saudi Arabia for the last few years and now that the government is planning to lift export bans, capacity expansion could again be a growth strategy for leaders.
Cement used in the construction of residential units was the third-largest application segment in 2013.
The government has undertaken several infrastructure development projects across the Kingdom as part of the Ninth Development Plan. High investment in infrastructure development activities is anticipated to be a major demand driver.
The government allocated a major portion of these funds for the construction of residential and commercial structures. This includes health cities and residential units in several regions across the Kingdom.
The decision to build six economic cities across the Kingdom is also likely to boost demand for cement in the Kingdom. Growth in population coupled with the influx of foreign immigrants is further anticipated to propel demand for new residential units, thereby driving the demand further.
Saudi Aramco supplies subsidised fuel to cement companies in the Kingdom as part of an agreement with the government. Thus, the production cost of cement is one of the lowest as compared to that in the neighboring GCC countries, due to abundance of raw materials and availability of fuel at subsidised rates.
In terms of demand, the central and the western regions were the dominant markets for cement in Saudi Arabia in 2013. Together, these regions accounted for a majority share of cement in the Kingdom.
Key players operating in the cement market include Saudi Cement Company, Yamama Cement Company, Najran Cement Company, and Riyadh Cement Company.