CBM-CI International Workshop, Karachi, Pakistan

Engr. M. Al-Nagadi

SAUDI ARABIA CONCRETE CONSTRUCTION INDUSTRY CEMENT BASED MATERIALS AND CIVIL INFRASTRUCTURE (CBM & CI)
Engr. Mohammed Al-Nagadi President of Saudi Building Code National Committee (SBCNC) Deputy Minister, Ministry of Urban and Rural Affairs Riyadh KINGDOM OF SAUDI ARABIA

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 has a considerable effect on a projects costs and profitability. The construction and building materials sector usually follows the growth in a countrys GDP, 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 expansionary periods, demand for building materials (including cement) tend to surge at a higher rate than GDP growth, while an economic slowdown severely affects demand for building materials. 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 and consumption. Various trends are highlighted, and a forecast for the general sector development in coming years is presented.

1.

INTRODUCTION

The Kingdom of Saudi Arabia in its present form was made a reality through the relentless struggle of Abdul Aziz Ibn Saud. Saudi Arabia was inaugurated as a Kingdom in the year 1932, with Ibn Saud installed as its first King. After 1932, major events and happenings in the Kingdom are recorded in history. The Kingdom of Saudi Arabia is located between latitude 16 north and 32 north and extends from 35 east to 55.6 east. The total area of the Kingdom is 2,149,690 sq. km with a population estimated (2007) at around 27.6 million. The country is largely hot and dry with temperatures ranging from 0C in winters to 50C in summers. 103

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Engr. M. Al-Nagadi

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 mentioned is 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 revenues contribute to the GNP to an extent of about 45%. In other words, oil revenues and the trend of oil prices are the governing factors for the cement and construction industry in Saudi Arabia.

2.

CONSTRUCTION INDUSTRY

Saudi Arabia comprises the largest construction market in the Middle East, with multibillion dollar projects under way and many more in the planning stage by both the public and private sectors. Due to vast fluctuations in international oil prices, the construction industry has progressed in 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, peaks occurred every 5-6 years. After 2001, there has been a steady growth in the Kingdom, which has resulted in the installation of a large number of cement factories to cater to the steady demand in the construction sector. The construction sector in the Kingdom accounts for 8% of GDP. The principal activities are located in the three main cities, Riyadh, Jeddah and Dammam, which account for 75% of the Kingdoms construction activities. Factors that influence the future demand for cement include spending on infrastructure, schools, industrial, commercial and residential property, etc. The current strategy of the Saudi Arabian government is to diversify the economy from oil dependence to other less cyclical industries and services sectors. There are also the domestic considerations of a growing population and the need to provide jobs to a sizeable and everincreasing population. Alongside government initiatives, the government has opened the doors for both private and public sector investment, including foreign investment in both the social and industrial infrastructures. The construction activities in Saudi Arabia are summarized in Table 1.

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Engr. M. Al-Nagadi

Table 1

Construction activities in Saudi Arabia

3.

CEMENT INDUSTRY

Commercial cement production commenced in the Kingdom in 1956 with the establishment of Arabian Cement Co. in Jeddah with a kiln capacity of 90,000 million tons/annum. Prior to this date, all cement requirements were met through imports. The construction/cement industry in the Kingdom is a mature industry, having been in existence for 50 years, and thus has experienced both the highs (boom demand growth) and the lows (oversupply resulting in price wars). During recent years (2002 onwards), the construction industry in the Kingdom has been experiencing what can only be described as a boom growth (+8% to +13% p.a.). The growth 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.). 105

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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 costs incurred, net selling prices for exported cement are usually lower than local sales, negatively affecting the exporting companys profit margins. Figure 3.1 presents the net exports of Saudi companies over a five-year period.

Figure 3.1

Quantity of net exports of Saudi Arabian cement

3.1

Cost of Production

The cement industry is one of the highest energy-intensive industries in the world, with fuel and energy costs typically representing 30-40% of total production costs. With the high volatility and current hikes in oil prices, most manufacturers are shifting to more stable lower-cost energy sources for their production facilities, such as natural gas and coal. Fuel prices in Saudi Arabia are relatively low and stable compared with other parts of the world because they are driven by government control over the oil and gas sector. With such benefit accruing to cement producers, rising oil prices give regional producers a competitive advantage over their global peers. Raw material costs represent the second-largest percentage of cement manufacturers cost structures. 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 relative to its peers.

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Engr. M. Al-Nagadi

3.2
3.2.1

Products
Portland Cement

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

Type I Ordinary
Portland Cement (OPC)

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

Type V Sulphate
Resistant Portland Cement (SRC) 3.2.2 Others

The two other specialized types of cement produced are:

Pozzolan Cement Oil Cement

This cement is used in manufacturing Pozzlan products and is only produced by two local manufacturers, namely Inv 1329 Yanbu Cement Co. and Inv 1402 Tabuk Cement Co. This cement is designed specifically to meet Saudi Aramco specifications for use within the oil industry. It is only produced by 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 mix manufacturers, 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 for cement. In the cement kiln, minerals are formed, giving cement its specific properties. The main components are the oxides of calcium, which are provided mainly by limestone; marl or chalk; and silicon, aluminium and iron components as well as other elements that are provided by clay and shale. 107

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Engr. M. Al-Nagadi

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 raw materials in the production process. The use of these alternative materials has significant positive environmental and economic benefits. The need to quarry primary raw materials is reduced, energy consumption in production cement is cut, and overall reductions in emissions of dust, CO2 and acid gases are attained. In some applications, the performance of concrete can be enhanced when portland cement clinker is complemented by these materials.

3.4

Energy

The main fossil fuels used in the cement industry are coal, petcoke, heavy oil, and natural gas. 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 fuels in cement kilns saves fossil fuels, reduces production costs, reduces emissions to the air and eliminates the need for disposal of slag and ash. Cement manufacturing is an energy-intensive process. The specific thermal energy consumption of a cement kiln varies between 3,000 and 7,500 million joules per ton of clinker, depending on the basic process design of the plant. The major consumers of electrical energy in the cement manufacturing process are the mills and the large fans. The specific electrical energy consumption typically ranges between 90 and 130 kWh per ton of cement. With energy typically accounting for 30-40% of the production cost of cement, cement manufacturers throughout the world have successfully concentrated significant efforts on improving energy efficiency in recent decades. The specific energy consumption for the production of cement clinker has been reduced by 30% since the 1970s. The continued efforts over recent years to improve energy efficiency mean that there is little room for further improvement. However, efforts continue with regard to equipment design and process technology 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 Saudi Arabia. There were peaks every 5-6 years until the year 2001, when cement consumption started to rise at the rate of 5-6%. After the year 2003, cement consumption increased by 9.5%, 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% per annum. Table 2 shows the clinker and cement production to the year 2006 as actual and for 2007 to 2010 as estimated. The table shows that from 2007 onwards the cement production sector will be growing at the rate of 20-25% per annum, which is much more than the demand expectation of 10-15%. 108

Table 2

Clinker and cement production in Saudi Arabia for the years 2003-2010.

CBM-CI International Workshop, Karachi, Pakistan

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Engr. M. Al-Nagadi

CBM-CI International Workshop, Karachi, Pakistan

Engr. M. Al-Nagadi

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.

Figure 4.1

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

Comparing to the estimated cement production in the year 2010, it becomes quite clear that the cement supply in the Kingdom will eclipse the demand. Accordingly, it can be expected that 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 quarter of 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 to the 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 prevailing political conditions in the adjoining country, it can still be expected that Saudi Arabia will be in a better position to export cement than any other country in the region.

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Figure 4.2

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

The major factor governing the healthy export scenarios are the low fuel and electricity prices in Saudi Arabia, which form about 50% of the total manufacturing cost. This advantage 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 this time, the surplus stocks in the Kingdom will be consumed domestically or exported. As oil prices are expected to remain high, cement consumption in the Kingdom will continue to increase at a steady rate. This factor will help to reduce the surplus clinker and cement stocks 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 even lower due to surplus cement available in the next few years. In addition, new and efficient cement manufacturing facilities will further decrease the cost of manufacturing. The cement industry in Saudi Arabia is expected to easily be able to support the large number of expected sizeable construction projects in the region and is in the best position to even export considerable quantities. In conclusion, the construction boom in Saudi Arabia can be expected to continue over an extended period of time due to a very healthy infrastructure. 111

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ACKNOWLEDGEMENTS The author would like to thank Dr. Nasser F Akeel, General Manager and Member of the Board of Riyadh Cement Company, and his colleague Naseer Uddin Siddiqui, Assistant General Manager (Projects), for their support and input to this document. The author would also to express gratitude to Mr. Herwart Pusch, IT Advisor from the German Agency for Technical Cooperation (GTZ), for his help in finalizing the document. REFERENCES
[1] [2] [3] [4] [5] [6] [7] [8] Municipality Statistics - 1426H (Issue 56 of the municipal statistical year book), 2005 / 2006G, Kingdom of Saudi Arabia, Ministry of Municipal and Rural Affairs. 8th Municipal Development Plan, 2005 2009, Kingdom of Saudi Arabia, Ministry of Planning & Ministry of Municipal and Rural Affairs, 2005 Meed - Middle East Economic Digest, magazine & web site (http://www.meed.com/) 2006 / 07 Dr. Naseer F. Akeel, Naseer Uddin Siddiqui, Report on the Cement and Construction Industry in Saudi Arabia (Cement production and consumption scenario), Riyadh Cement Co., Kingdom of Saudi Arabia, 2007 Saumen Karkun, Holtec, Cement Review Magazine, May 2006 Saudi Arabia Article, Gulf Construction Magazine May 2006 World Almanac 2007 Madawi Al-Rasheed, History of Saudi Arabia.

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