As prices rise, Saudi cement companies may seek alternatives

• Production costs up 10%
• Cement share prices drop
• 80m tonnes produced annually

Cement companies in Saudi Arabia may be forced to turn to more sustainable alternatives after the prices of fuel products used in production rose for the second successive year.

Saudi businesses have been given notice of the price increases, which came into effect from the start of this month.

The price of methane, the main component of natural gas and commonly used as a fuel in cement kilns, rose to $0.5 per one million British thermal units (MMbtu).

Ethane, which is mainly used as a feedstock in the petrochemical sector to make plastics and other chemicals, rose to $0.75 per MMbtu.

The price of diesel has also gone up by 44.3 percent, to $0.44 per litre, which will have an impact across many sectors in the kingdom.

Najran Cement and Arabian Cement Company both revealed in separate notes to the Saudi stock exchange (Tadawul) that their production costs would rise by 10 percent as a result of the increases. Saudi Cement said its costs would be up 8 percent.

The share prices of the three companies were down 1.75 percent, 5.8 percent and 2.8 percent respectively at market close on Thursday.

The same was true for all listed cement companies on the exchange, which closed down on the day.

“Along with the increase in diesel prices, the impact is disproportionately higher for those companies in the fringes looking to gain volumes in other regions,” the Riyadh-based market analysis company Sico Research said in a note on Thursday.

Saudi Arabia is currently undergoing a massive transformation through Crown Prince Mohammed bin Salman’s ambitious Vision 2030 programme.

The Saudi minister of industry and mineral resources, Bandar Alkhorayef, said in a speech last year that spending in the construction sector will reach SAR6 trillion ($1.6 trillion) by 2030.

Matt Myers, assistant professor in real estate at the School of Energy, Geoscience, Infrastructure and Society at Heriot-Watt University Dubai, said the increased costs in the cement sector could see developers reassess feasibility models, exploring project redesigns or considering alternative building materials.

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“As developers seek cost-effective solutions, they may turn to supplementary cementitious materials, SCMs, or innovative technologies like carbon capture and storage. These alternatives not only align with global sustainability goals but also offer long-term economic and environmental benefits,” he told AGBI.

GCC governments and developers, particularly in the UAE and Saudi Arabia, are pushing to find alternatives to traditional concrete and its basic building block and biggest pollutant, cement, which accounts for about eight percent of the world’s total CO2 emissions.

Saudi Arabia ranks first in the Arab world and 10th globally in cement production, with a production capacity exceeding 80 million tonnes annually from 20 factories in gthe country. 

The cement market in Saudi Arabia is forecast to grow by $2.24 billion between 2023 and 2028, accelerating at a compound annual growth rate of 6.27 percent during the period, according to the global market research company ResearchAndMarkets.

Cement prices in the country are currently capped at SAR240 per tonne.

Amr Nader, the Dubai-based chief executive of consultancy A³&Co, said that despite cost increases over the past few years, the Saudi cement sector remains one of the most profitable in the world, with a net margin average around 50 percent higher than the global average.

However, he said sustaining that profitability would depend on the sector’s ability to innovate, adapt and optimise operations.

Nader said the government’s plan to shift the sector to natural gas represents a “pivotal step” in addressing the balancing act between capitalising on growth opportunities and navigating the rising production costs.

“Transitioning to natural gas is expected to lower fuel costs in the long term, mitigate the impact of volatile diesel prices and reduce the sector’s carbon footprint, aligning with the kingdom’s decarbonisation goals,” he said.

Petrochemical companies have also been affected by the price rises, although according to Sico the impact will be “small and could be offset by movement in product prices”.