A reversal of fortune for cement-makers

With the recent cement shortage now over, Hugo Berger looks at how the new levels of production have brought a whole new set of problems.

The ins and outs: GCC countries will soon have a surplus of cement, and will have to switch focus from import to export for the product. (Valeriano Ha
The ins and outs: GCC countries will soon have a surplus of cement, and will have to switch focus from import to export for the product. (Valeriano Ha

Earlier this year, the construction industry was fraught with tension, as the cost of cement seemed to be rising faster than the skyscraper projects it was being used for.

Many feared that many prestigious projects in the region would be delivered late or over-budget because of a shortage.

In the UAE, where demand for cement is highest, the price of the product reached a record US $100 (AED370) per tonne.

The situation became so desperate that the UAE government introduced a price cap of $80 per tonne on cement prices.

However, just as the situation seemed to reach crisis point, a number of factors caused the price of cement to fall.

Recent figures put its price at around $70 per tonne.

Yet as one crisis seems to pass, experts predict another one could be just around the corner.

They fear that soon there could be an oversupply of cement on local markets, meaning Middle Eastern countries will be looking to export the product.

But Richard Feraud, managing director, Quadra Trading, believes infrastructure deficiencies will limit this potential export industry.

Feraud has written a report - called Trading Patterns In The Middle East - in which he outlines the changes in the cement situation in the GCC within the past six months.

His report said that the surge in oil prices fuelled the construction boom in the region, thus leading to an increase in demand for cement.

The surge in prices has led to local producers, especially in Saudi Arabia, increasing output.

"Within the next two to three years, Middle Eastern cement producers will face the major challenge of refocusing their sales onto international markets to deal with their planned massive export surpluses, which will arise even if the current economic growth and strong oil prices continue," writes Feraud.

He believes that within two to three years, GCC countries will find themselves in the reverse situation from being net importers to net exporters.

This means new challenges must be faced so that the region's cement industry can compete in international markets.

Feraud added that the infrastructure of ports must be improved because so few of them can cope with Panamax ships (those built to the largest possible size to use the Panama Canal).

He also said port authorities need to build larger warehouses to allow for large-scale export.

Even if this happens, GCC countries could lag behind their Asian competitors, who have at least a decade's experience in international cement markets.

Issues such as compliance with international standards, including how to break the non-tariff barriers that limit the entrance into the EU and US markets, need to be overcome.

Because of this, Feraud argued that only limited volumes of cement may be exported. In Saudi Arabia, for example, the amount of exportable cement is expected to reach 12 to 14 million tonnes by 2010. Yet only six to seven million tonnes of this will be able to be sold abroad. Iran, another major producer, could produce a surplus of 15 million tonnes by 2010, but less than 15% (2.5 million tonnes) could be exported.

Only in the UAE, which has a more advanced port structure, is the situation deemed less critical.

Feraud estimated that it has an excess of six million tonnes, of which it will have the capacity to export three or four million.

"The problems earlier this year were due to the cost of freight - which was so high - and also many of the ports in the area did not have the infrastructure to cope with the levels of freight.

"There was a physical limit of five or six million tonnes a year because of the capacity of the boats and the warehouses to store the goods at the ports.

"The GCC region has the raw materials available for the production of cement and so it was not impossible to increase production.

"Soon the region will face new problems and it will be interesting to see whether it is able to cope with this."

Chris Lobel, general manager, Conmix, believed there was another reason for the stabilisation in the price of cement.

He said: "We found that in July and August the price of cement was very high because there was such a demand for it.

"Then you had the amnesty, about 300,000 workers left the country and progress on sites slowed down a bit. Some sites even stopped. As some of the workforce had gone away and work was going slower, the cement situation eased off and there was less demand for it."

He added that when labourers started to return to Dubai, the demand would increase.

"A lot of new producers are grinding cement so I don't think there is going to be a shortage next year and there will be a good balance," he added.

"I am sure that there will be an over-supply of cement one day, but the question is when?"

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