WHEN a group of Saudi Cement Company executives gathered in Jeddah at the end of Ramadan, the talk was again of crisis management. How could producers tackle the problem of huge over-capacity in the local market and defend themselves from the resultant slide in prices?

Some of those present could have been excused from thinking they had seen all this before. ‘Seven to eight years ago, [local cement] companies were on the verge of collapse,’ recalls one general manager. ‘Saudi Arabia was almost at a standstill. Then international and local demand increased after the Gulf war, there was lots of cash in the market and construction picked up.’ At that time, one of the ideas floated was a series of mergers among the seven - now eight - companies to cut costs. Once again, possible defensive measures centre on consolidation. ‘There is lots of talk about mergers,’ the general manager says. The most likely alliances are among Yamama Saudi Cement Company, Eastern Province Cement Company and Saudi Cement Company, grouping those of the east coast and central region; and among Arabian Cement Company, Yanbu Cement Company, Southern Province Cement Company and Tabuk Cement Company of the west coast and southern region. The eighth player, Qassim Cement Company, based in the north central region, could spring either way.

Among the first group, at least, momentum appears to be building for a merger. ‘We compete in almost the same market,’ explains a company source. ‘When the market was big enough for all of us, we didn’t mind. But now with a shrinking market and growing capacity, there is a chance of fighting.’ That chance is already becoming a reality. Says the source: ‘For Riyadh, we have reduced our prices by SR 20 [$5] a tonne to try to gain a little more share of the market. And that [reduction] may not be enough.’ The price cuts - to SR 180 ($48) a tonne for ordinary Portland bulk cement in Riyadh - are hitting all companies and not even having the effect of stimulating demand, he says. ‘Others will reduce and prices could deteriorate further.’

To avoid this and to be able to compete internationally, Saudi cement companies are now urgently addressing the proposals for mergers. ‘We could save a lot of money by merging,’ says the general manager, and, with Saudi Arabia’s eventual accession to the World Trade Organisation in mind, ‘we will have to be prepared for dumping on our borders,’ he says. The plan is that in three years, there should only be two local cement companies. In five or six years, there may be only one. In the meantime, it seems the best that producers can aim for is to put a floor under prices locally and hope that the international market will pick up, allowing a steady increase in export trade to continue.

RT