Regional producers are now ramping up for a new phase of capacity expansion, driven by the construction boom in the GCC states. In the past, the Arab states have tended to behave as discrete cement markets, with local production tallying closely with demand – high transport costs usually dictate against cross-border trade in such a cheap commodity. But the demand for building materials has been so strong in the past 18 months that an unusual phenomenon has emerged recently: a regional cement market. With the exception of Iraq, total installed capacity in the Middle East now stands at close to 150 million tonnes a year (t/y). It is expected to expand by as much as 10 per cent in the next three years, as new production facilities come on line in response to the surge in demand.
As the region’s largest producer, Egypt has been the biggest beneficiary of this change. The sluggish domestic construction market has opened up a new niche market for exports, while the devaluation of the local currency since its flotation in January 2003 has helped producers to compete on price. The average cost of a tonne of Egyptian Portland cement last year was about $36, almost half the price of Iranian cement, for example, and the cheapest globally. By the beginning of 2004, the country had become the world’s third largest exporter of cement, and at current trends exports are expected to peak at about 11 million tonnes in 2005.
Egypt accounted for 7.5 million of the region’s 17.1 million tonnes of total cement exports last year. Without its contribution, the Middle East would be a net importer by some 1.3 million t/y. Egypt’s geographical position has also given it preferential access to the European markets in the north: Spain is now its biggest customer. The strength of this export link is expected to tail off, however, as Turkey eats into its current capacity glut and new capacity comes on line in Algeria.
The anticipated North African competition will benefit at least one Egyptian producer, however. Orascom Construction Industries (OCI) says it expects construction revenue from Algeria to match revenue from the company’s home market by 2005. The first 2.2 million-t/y line of the plant operated by OCI subsidiary Algerian Cement Company (ACC) has been in operation since the beginning of the year. A second train of equal size is now being built by FL Smidth of Denmark. This will give ACC a 20 per cent share of the market when the new line starts up next year.
Orascom hopes to replicate the success of its Algerian foray in Libya, where OCI subsidiary Cementech is working on a new cement line, also being built by FL Smidth. As in Algeria, the Libyan plant will help to undermine OCI’s competitors on the home front. Egypt exported 761,000 tonnes of cement to its neighbour last year, and although they have profited from dumping excess supply on the foreign market recently, most Egyptian producers are susceptible to any drops in regional demand. Besides the Algerian and Libyan projects, a new 900,000-t/y cement line is being planned by France’s Lafarge at its Bouskoura plant in Morocco. Capacity increases can also be expected in Tunisia following the privatisation of Societe Tuniso-Algerienne de Ciment Blanc (Socatib). As a result, there have been no official announcements of planned capacity expansions in Egypt in the near future.
Elsewhere in the region, smaller producers are attempting t