Could Saudi be lifting its cement export ban?

Saudi Arabia may soon lift its cement export restrictions in the face of increasing production capacity and falling domestic demand, according to an industry insider.

The restrictions introduced last July banned cement exports to all countries with the exception of Bahrain, which had its weekly quota halved from 50,000 to 25,000 tonnes.

The affect was nonetheless crippling for Bahrain’s construction sector, which relies on Saudi cement for the vast majority of its supplies, causing many projects to suffer delays.

Andy Rogers, technical sales manager for Bahrain’s Haji Hassan Readymix, said supply was still tight and prices remained 20-30% higher, but he expected the situation to ease shortly.

“I understand that Saudi Arabia is going to release exports again very soon. That’s just anecdotally, but from a very good source,” he told Construction Week. “So if that is true then supply will be back up and we’ll see a reduction in price and we’ll pass that straight onto the customers.”

Saudi Arabia’s Ministry of Commerce imposed the export restrictions amid concerns of a domestic cement shortage during the Kingdom’s construction boom.

Rogers said this reasoning is no longer valid. “I think demand has dropped in Saudi a little bit and in addition to that the cement manufacturers in Saudi have invested heavily in increasing their capacity,” he said.

“They need an outlet now to get a return on their investment and so it doesn’t make sense anymore to keep the ban in place. I’m pretty sure we might see cement prices coming down soon.”

According to statistics from Jeddah-based BMG Financial Advisors the production capacity of Saudi cement firms rose from 31 million tonnes in 2007 to 43.6 million tonnes at the end of 2008. By the end of 2009 it is expected to reach 49 million tonnes.

The general manager of a leading Saudi cement firm told Construction Week the Kingdom currently has an inventory of 10 million tonnes, which is more than enough to supply the local market.

“Even without the inventory, demand is only around 30 million tonnes a year so you’ve already got an oversupply above 30%,” said the source, who asked not be named.

“They will have to [lift the ban] some day, but nobody knows whether it will be in two weeks, three weeks or two months, there has been no official announcement.”

Saudi cement producers are urging the government to overturn the ban after suffering negative fourth quarter growth and losing enormous business opportunities, he added.

The Ministry of Commerce was not available to comment.