Saudi Arabia’s King Abdullah bin Abdulaziz al-Saud issued an urgent edict on 17 April ordering the immediate import of 10 million tonnes of cement to help alleviate the shortages in the local market. The move follows an export ban of cement in February 2012 and the reversal of a long-standing import ban that was introduced in March 2012.

The kingdom’s commitment to invest more than $370bn in construction and infrastructure projects has increased the local demand for cement from approximately 20 million tonnes in 2005 to 53 million tonnes at the close of 2012. While the increase in demand has not affected the official price of cement due to an enforced price cap, some developers have been forced to pay inflated prices for cement through unofficial sources as they seek to keep projects on schedule.

Cement production capacity in the kingdom currently stands at 56 million tonnes a year (t/y). With a huge pipeline of projects, local cement demand is predicted to grow 9.4 per cent to top 80 million t/y by 2017, far outstripping supply, as reported by research company CW Group, a leading global cement industry consultancy.

King Abdullah has allocated funding for the construction of new production facilities that will add 30 million tonnes of extra capacity by 2017, most of which will be commissioned in 2014 and 2015.

The removal of the import ban will likely have a significant impact on other regional producers. Oman may benefit by exporting to the kingdom as current cement prices are lower than in Saudi Arabia, while UAE firms would be tempted to use excess capacity, installed during the construction boom. Iran may another possible source as they seek to increase exports, however, political differences may halt such an agreement.

Saudi Arabia’s urgent decree will certainly resolve localised short-term supply shortages and control the surging cement prices on the black market, however, an additional 30 million t/y production capacity may prove to be excessive in the long term.

Unless the kingdom can maintain the same level of investment in developments and infrastructure, the excess capacity may affect other regional cement producers. Such an oversupply of heavily subsidised cement on the regional market may force downward pressure on cement prices across the GCC if it cannot be used locally.