High public spending boosts Saudi cement demand

High public spending boosts Saudi cement demand
Published: 24 November 2010

Cement consumption in Kingdom to exceed 36Mt in 2010. A surge in capital expenditure as part of high public spending prompted by the global fiscal crisis has kept cement demand in Saudi Arabia strong, with sales swelling by over 13 per cent in the first nine months of 2010.

Forecasts by National Commercial Bank (NCB) showed cement sales in the world’s dominant oil power and largest Arab economy would surpass 36Mt through 2010, driven by a construction upswing.

In a study sent to Emirates 24/7, NCB said the Gulf Kingdom’s cement sector has been driven mainly by high government spending on projects over the past year within its counter-crisis fiscal expansion policy.

“The fundamentals for the Saudi cement sector are fuelled in part through the government’s continued high expenditure on economic and social infrastructure buoyed by a young demographic structure,” said NCB, the largest Saudi bank.

“In the first nine months of 2010, total local cement sales amounted to 34.4Mt, an increase of 13.3 per cent over the same period in 2009. By end of 2010, we forecast total local sales to be 36.5Mt.”

According to the study, both consumption and prices of cement have been increasing since the beginning of the year, driven by the eight per cent growth in construction activity by the first half of 2010. Cement prices have swelled to nearly SAR270 per tonne by September 2010, it added.

NCB’s figures showed the Saudi economy has more than doubled over the past 10 years as measured by nominal GDP.

“NCB estimates GDP by end 2010 to reach SAR1625.8bn, with corresponding GDP per capita of SAR62,746, a 130 per cent increase from the SAR706.7bn GDP in 2000,” the report said.

It noted that the government’s budget for 2010 continued to focus on capital expenditure with SR260 billion or 48 per cent of resources being allocated to infrastructure projects. “Consumption for cement, therefore, can be projected vis-à-vis aggregate expenditure on construction in the Kingdom.”

The report expected total expenditure in the construction sector, as measured by its components in the country’s gross fixed capital formation (GFCF), to reach SAR188bn in 2010, a 13.2 per cent increase from last year.

Saudi Arabia, which controls over a fifth of the world’s extractable crude deposits, also plans to spend nearly US$400bn in the next five years on infrastructure and other development projects, according to official estimates.

In an earlier study, NCB said licences for new cement projects and expansions of existing units would boost total production to a record 54Mt in 2010.

“While cement exports absorb nearly 10 per cent of the total cement sales, the remaining 25 per cent is met by the transient demand created by the waves of construction projects, both public and private sectors,” it said.

“Upon completion of these projects, a time we believe could be around 2015, excess capacity above the sustainable domestic demand and exports is widely feared amongst industry analysts. Thus, in the domestic market perspective, the capacity overhang looks as a real possibility that would tend to intensify competition among local cement producers and to push prices lower.”