Special Report contents:

• Saudi Arabia: Balancing austerity with growth
• Tough decisions ahead for Saudi spending plans
• Saudi projects market faces slow 2016
• Riyadh surrounded by problems
• Riyadh expected to maintain oil strategy
• No gain without pain for Saudi projects sector
• Databank: Saudi Arabia key economic indicators

After the establishment of world-scale oil and petrochemicals industries in Saudi Arabia, the kingdom’s leadership is looking to mining to build the “third pillar” of the economy.

Unlike the kingdom’s smaller GCC neighbours, Saudi Arabia has a large wealth of mineral resources that it is integrating into industries downstream such as aluminium and fertiliser production.

But the country’s wave of expansions has come at a precarious time in international markets, where commodity prices have fallen dramatically over recent years.

Mining targets

Saudi Arabia is aiming to triple the mining sector’s contribution to national GDP by 2030 and provide 100,000 new jobs in remote areas, according the kingdom’s Petroleum & Mineral Resources Minister Ali al-Naimi.

Speaking at the Saudi Mining & Minerals Conference in Riyadh on 27 October, Al-Naimi said he expected the sector’s contribution to annual GDP to reach SR360bn ($96bn) by 2030.

Al-Naimi emphasised the national importance of mining and minerals to the kingdom’s economy and its role in the growth of industries such as construction materials, ceramics and glass. 

“We are preparing ambitious plans to execute in the next five or 10 years and it will lead transformation in the kingdom,” said the minister.

The mining and minerals sector employs 260,000 people, of whom about 65 per cent are Saudi nationals, he added. Future growth areas will include aluminium, copper, zinc, gypsum and downstream industries, such as cement.

Saudi Arabia has the capacity to produce 60 million tonnes a year (t/y) of cement; an increase from 27 million t/y in 2006.

Commodities slump

Prospects for expansion in Saudi Arabia’s mining and metals industry, however, have been hit by a slump in commodity prices over the past three years.

Delegates at the conference expressed concerns about the recovery of a sector that has been hit by oversupply and slower-than-expected global economic growth.

Paul Robinson, director of multi-commodity, knowledge and information, at UK-based consultancy CRU, said the average basket price of 35 commodities is expected to drop by nearly 12 per cent in 2015.

“There has been no annual positive price movement since 2011. This means less cash available for debt repayment, investment and operating costs,” said Robinson. “Optimism has been replaced with concern.”

Robinson said that CRU is “cautiously optimistic” about a medium-term recovery, but forecasts the average commodities price to remain flat in 2016.

Steel losses

The steel business of industrial group Saudi Basic Industries Corporation (Sabic) reported a loss for the third quarter of 2015, according to Abdulaziz al-Humaid, the company’s executive vice-president for metals.

“The drop in raw materials prices is also bad news for the steel industry,” said Al-Humaid.

Saudi Arabia, the Middle East’s second-largest steel producer after Iran, has struggled to push through major projects in recent years.

The kingdom’s previous flagship steel project, Al-Rajhi Steel’s proposed $3bn complex at King Abdullah Economic City (Kaec) was cancelled in 2013.

In the same year, it emerged that chemicals group Sabic was planning to invest $4.2bn in two new steel projects, but these are now on hold as further feasibility studies are carried out.

“We are cautiously optimistic [on mining and metals] for 2016. We see some return to strength driven by consumer confidence and some uptick in demand,” said Robinson.

“Fundamentally, in the medium term, we are more optimistic in base and precious metals over bulk commodities. They are more geologically scarce and more difficult to develop. So there are opportunities for people in copper and zinc to develop and fill those markets,” he added.

CRU is less optimistic in its outlook for aluminium, saying the world does not need any additional smelting capacity, but the Chinese industry is expected to increase production further next year.

Maaden operations

State-owned Saudi Arabian Mining Company (Maaden) has largely driven growth in the kingdom’s mining and minerals sector over the past decade.

Maaden operates five gold mines, largely in the west of the country, producing about 137,000 ounces a year, and a phosphate mine and industrial complex with the capacity to produce 3 million tonnes a year (t/y) of phosphate products.

The company also has industrial minerals extraction and processing operations, producing caustic magnesia, magnesite, kaolin and low-grade bauxite.

The latest development completed by Maaden is the integrated bauxite mine and aluminium complex – the latter based at Ras al-Khair on the Gulf coast.

Over the past two years, Maaden has awarded the main packages on its $7bn Waad al-Shamal phosphates city in the north of the country, integrated into processing plants in Ras al-Khair.

But with little visibility of new major projects on the horizon, it is unclear whether the kingdom will push ahead with major capital expenditure while the outlook for global commodities remains uncertain.