The Saudi cement market: opportunities and challenges – Dr Badr O Johar, Arabian Cement Company

??? ???? ?????? ??????. ???? ???????? ????? ???????? ?????? ??????. ?????? ????? ????? ???? ???????. Welcome to Riyadh. Welcome to Saudi Arabia. Thomas mentioned an important thing that choosing Riyadh for first time for CemTech significant importance. I think I cannot agree more. It's actually where it all started. The cement industry in Saudi Arabia started, or in the Gulf region in Saudi Arabia, started here in Saudi Arabia. remote? ?????. ???? ?????. The cement industry in Saudi Arabia actually started back in 1955. It's almost 70 years old, and the first license was issued back then, was the first license of cement plant in the Gulf region in Saudi Arabia.

Before that, actually, the mining industry, this was the milestone, the beginning of the industry in Saudi Arabia. However, the mining industry was starting before that, was in the 1939, when the government issued the first gold mining license at that time. As you know, the Saudi market is widespread, so our producer or manufacturer of cement are widely spread around the Kingdom of Saudi Arabia. These companies has contributed in the development of these areas, participated in the direct creation of jobs and indirect creation of jobs. It helped the small and the medium enterprises as well, providing services to these industries.

For many years, the cement industry has been a successful investment for its shareholders with a good return on investments. The sector today is considered one of the pillars of the Saudi Stock Exchange. If we look at the map of Saudi Arabia, we have a total of 16 cement manufacturing companies with a total 19 integrated full plants around the Kingdom. They are widely spread over all the areas with different capacities. If you look at the capacities, including the current expansion, upgradation, and replacement project, we are talking about almost touching the 80 million tons of clinker once all these projects are operational and online.

The top five companies in Saudi Arabia contributes to the 50 or more than 50% of the capacity and also as a market share. The Saudi market is as big as the neighboring markets, like the Egyptian cement market as well as the Iranian cement market as well. The companies produce the normal ordinary Portland cement, sulfate-resistant cement, in addition to specific type of cements that are needed in the country: white cement, oil well cement, other blended type of cement. I'd like to go back in the history a little bit. This will give you an idea how the cement market behaved in Saudi Arabia.

If you go back in the '80s, when the country is coming out of the construction boom that started back in the '70s. In '85, we had almost six cement manufacturing plants or six companies that are operating in Saudi Arabia. The demand were low over the 15 years from '85 to 2000. The demand or annual growth rate was almost 0.35%. After that, from 2000 until 2015, the cement sector has changed. We have seen a huge hike in demand. Number of companies, actually, in that period, from 2005 and 2015, almost doubled. We had the six cement-- At that time, we had almost eight cement plants, and after that period, we have seen a lot of interest in cement industry. There's new license were issued.

New investors or new players came into the market, and by the end of 2015, we had 17 companies operating in the Kingdom. The annual growth rate for that period was 9.4%. If we zoom in on the years from 2007 to 2013, the country has witnessed a double-digit growth, almost 13%, and that is coming from the government spending and the expensive infrastructure project at that time. Looking back for the last 40 years, the annual growth rate was around 3.3%, which is in line with the typical growth of a developing countries. After the 2015, we have seen restructuring of some projects, restructuring of government spending.

The housing project of the government was introduced back in 2018, and that contributed to the growth of demand in the country from 2018 onwards. The annual growth rate of that period until this year was 4.1%. We expect, based on the studies and economical reports, that this cycle that started back in 2015 will continue until 2030. The demand will slowly drop in the next few years. We'll see a medium demand on cement on the short period of time before it picks up from 2031 onwards. Where is the demand coming from? What are the drivers of the demand in Saudi Arabia? Mainly, the demand are coming from two areas, the giga and the mega projects that is driven by the Vision 2030.

And, the objective of the government is to diversify the economy, focusing or creating new sectors like the leisure and tourism, as well as focusing on other sector, which is the housing program. The idea is to diversify away from oil and gas and reduce dependence on hydrocarbon revenue. The driver of the demand, we've seen the PIF or the Public Investment Fund, which is the executive or execution arm of the government, establishing many companies in the real estate development sector, in the leisure sector, and in the entertainment sector. And all that help on the demand.

As well as we have seen in non-PIF companies, especially Royal Commissions and other companies that also contributed to the demand on the giga and the mega project part. If you look at the demand and the project spread all over the kingdom, this is a bit different than what usually is happening in the past, where you see the demand is concentrated in one area than the others. In this cycle of the demand, we've seen projects are coming all across the kingdom. However, it's with the longer execution times. Almost the total project's value, we're talking about 900 billion, including NEOM. The total awarded projects is almost 120 billion US dollars.

As we mentioned earlier, the demand drivers is the housing projects and the kingdom mega and giga projects. We expect to see the ready-mix concrete demands coming from the housing sector, where the precast and concrete is coming from mega and the giga project sector. Saudi Arabia today is one of the top ten countries in the world when it comes to export. However, as the friends mentioned, that sector still have some opportunities and challenges. We believe the way that the cement is located or the cement plants are located in Saudi Arabia will help the future demand and growth in the country and in the neighboring countries as well.

Government-sponsored program, that the liquid displacement program will be a huge opportunity for the cement manufacturing companies to move into dry gas and will help in decarbonization initiatives. The modern plants and the state-of-art technology in the cement industry in Saudi Arabia will help the adaptation of the artificial intelligence solution as well as the carbon reduction solutions. We have plants near the ports, and that has create the backbone that is required to scale up our export activities in the future. Challenges will remain the same. Overcapacity and pricing pressure will continue to exist in the short and medium term, and Saudi Arabia creating market instability.

We are facing increased energy cost in the last few years, and that will put pressure on margin and production cost. We've seen a profitability and market share volatility in the few years, causing also earning and stock performance fluctuation. We've seen a fierce competition in the international market when it comes to export, and that will limit the capability of our producer to export. In conclusion, as of today, in 2025, the cement manufacturing industry is still operating below 70% level of capacity. We think that the Saudi market today does not need additional capacity, and the current capabilities in the market is enough to meet the future demand.

We believe as well that the export, although the quantities are small, but it will remain essential for the stability and maintaining the operational excellency and efficiency of the cement manufacturing. We need to have, or to establish a flexible mechanism in the future for export and import to manage the surplus and shortages of cement in the kingdom. We believe that in the mature markets, that profitability and growth are challenged by various factors. Consolidation remain particularly a solution to solve market fragmentation. However, fundamental issues will remain the same, which is the overcapacity. Thank you very much. I wish you a good conference.