The Changing Scene in MENA

Four years ago, the cement industry in the Middle East and North Africa (MENA) region surged towards increased production, until the global economic crisis reduced cement consumption. For the first time in 10 years, some plants announced the development of clinker stockpiles. In the shadow of overcapacity in the cement market, many projects slowed and some stopped. As bank repayments tend to begin after commissioning, it can be worth slowing the construction progress of a project until a better outlook for the market is apparent. Despite the economic facts, production capacity in the region doubled in the last 10 years due to the demand for cement.

Iran

Iran’s 61 million t capacities produced 52 million t of cement by March 2010. The differences reflect newly commissioned projects suffering from low production. Previously, cement plants benefitted from a long waiting list of consumers, but the queue has now disappeared as oversupply causes market difficulties.

Cement producers are turning towards the export market, with 10 million t estimated for export this year. In recent years, Iranian cement has been produced using highly subsidised energy, making it attractive to neighbouring countries. However, the governmental withdrawal of subsidisation spells an end to this opportunity.

Iraq

Iraq has been one of the most unstable countries in the region, the war reducing the country’s capacity from 20 to 5 million t. Post-war efforts to rebuild infrastructures brought the total capacity to around 20 million t with the rehabilitation of old plants and the construction of new ones.

Iraq looks to be one of the most cement-dependant nations over the next 20 years. The consumption per capita is among the lowest in the region, though local capacities are improving and the gap between production and consumption decreasing. However, Iraq is still importing 7 million tpa of cement to cover the gap, and will continue to be a major export destination in the region even if local capacities improve.

UAE

UAE has been the fastest growing country in the region, with a high rate of consumption peaking at 21.7 million t in 2008, tripling levels recorded in 2003. Capacity expansion has also tripled from 11 million t in 2003 to 32.5 millon t in 2010, and is predicted to rise to 40.7 million t in 2011.

The financial crisis impacted badly on construction materials with investment in local industries such as cement appearing bleak. The gap between production and consumption is estimated to reach 16 million t in 2010, while comparatively high production costs make exportation near impossible. It is unclear if economic growth will return to its original position, or whether the surplus in the industry can be absorbed. The current situation looks damaging to the profitability of cement producers and those invested in the market.

Turkey

Turkey has strategic access to MENA and the Russian markets, with growing demand boosting its exports to 14 million t. Its total cement capacity of 64 million t is expected to reach 103 million t in the coming years. The gap between production and consumption has widened in recent years, with consumption stable despite increasing production capacities.

The global financial crisis caused investment slowdown and many projects await a better outlook. The Turkish cement industry is trying to neutralise the effect of the crisis by exportation. However, the opportunities are finite and Turkey does not have the benefit of cheap energy. The 104 million t planned capacity figure does not appear to be justified if economic difficulties continue, and similar planned capacity expansions for the main importers will limit Turkey’s chances of exports.

Saudi Arabia

Saudi Arabia was assumed to be one of the countries least affected by the financial crisis. Due to high revenue generated by oil, most projects are to schedule and there is no sign of mountainous clinker stockpiles. An export ban was in place until early 2009, while select producers were granted permission to export surplus cement. The market began to observe surplus capacity due to lower consumption and capacity expansion.

Cement capacity is expected to reach 53 million t this year, a 20 million t increase from 2008. The expansion is high compared to the stable sales. If these are maintained this year, Saudi cement will have to find a means for export, with such potential targets as the developing central African market alongside MENA.

Russia

The Russian construction industry was booming until the crisis caused trouble for the economy and consumption slowed by the end of 2008. The market for cement in 2009 was worth 43.7 million t, with 44 million t produced domestically. Cement production is expected to decrease as wet process systems convert to dry and old plants close.

Turkey’s supplies were considered one of the gold markets in 2006 - 2008 due to the high cement price in Russia. However, the consumption and prices shrunk as a result of the economic crisis and the high dependence of the Russian economy on the global market. Star Cement is investing in a new 2 million t greenfield project in Turkey for the Russian market, and the outlook seems to be promising.

Egypt

Egypt is one of the most prominent cement industries in the MENA region, growing vigorously on the back of high activity in construction and real estate. Cement production is expected to surpass 45 million t, while consumption should stabilise at around 41.5 million t. Despite the financial crisis, the Egyptian cement outlook seems positive, with government plans to boost investments in infrastructure projects and low income housing among others. Although statistics suggest higher production than consumption, some reports believe that the Egyptian import market will thrive this year. This means that Egypt will start to absorb more foreign capacities, in addition to licenses for 11 new plants domestically.

Conclusion

The MENA region has experienced a great deal of change over the last 20 years, mostly in basic infrastructures and lifestyles. Infrastructural projects demanded investments in building materials such as cement, hence the estimated tripling of capacity in most parts of the region. War has also been an influence on the increased demand for cement.

Regional stabilisation, capacity expansions and the global financial crisis caused a drop in demand for cement in the last two years, and clinker stockpiles began to appear. Exporting to the region seems to no longer be necessary, as MENA’s existing capacity is more than sufficient to satisfy local demand, even if the financial situation returns to its former glory as of three years ago.

Author: Dr M Rahim Vasehi, Vice-Chancellor of Research, Islamic Azad University.

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