KINGDOM OF SAUDI ARABIA
The Royal Commission for Jubail and Yanbu (RCJY) operates the largest two industrial cities in the Kingdom in terms of output by value rapidly over the last decade or so, from around 22m tonnes in 2002, and several major new factories have come on-stream in recent years.“Population growth, and government and private sector spending on mega-infrastructure projects are helping to drive the expansion of the building materials segment,”said Ali Al Ayed, director-general of SIDF. Population growth is currently running at around 2% a year. The government in 2011 announced plans to build 500,000 new housing units in order to address a shortage in the country, which should add to demand, though the initiative has been slow to get off the ground. Major construction and investment projects such as the various industrial and economic cities being built in the Kingdom are also helping to push up consumption levels. In order to avoid domestic shortages, and amid concerns about price rises, the government in recent years has repeatedly intervened in the sector by, for example, instructing cement producers to operate at full capacity and periodically putting in place export bans.“Reform efforts to decrease handling charges and adjust export tariffs could open significant potential for export of building and construction materials,”Khalid Al Amoudi, the vice-chairman of Saudi Red Bricks, told OBG. The largest cement producer in the Kingdom by output is Saudi Cement Company, with production of around 8.75m tpa in 2012. The firm operates two plants in Hofuf and Ain Dar, both of which are located in Eastern Province. Other prominent producers include Southern Province Cement Company and Yamama Cement Company. The sector has also attracted international investment in the form of French building materials major Lafarge’s stake in Al
Safwa Cement Company, which was established in 2007 and which operates a 2m-tpa facility north of Jeddah.
Metals Crude steel production stood at 5.2m tonnes in 2012 and 5.35m tonnes in 2013, according to the World Steel Association. Output has
been increasing steadily over the long term, from 2.98m tonnes in 2000. The Kingdom is the largest producer of the commodity in the GCC. While the global steel industry is still suffering from over-supply, construction activity in Saudi Arabia is driving demand for the commodity, and the Kingdom relies to a significant degree on imports. Sharjeel Azhar, the CEO of Al Ittefaq Steel, told OBG,“Demand for steel and other construction materials is strong thanks to all the mega projects such as the new metros, which will sustain high demand for several years.” SABIC is the major player in the national crude steel industry, via its wholly owned subsidiary Hadeed Saudi Iron and Steel Company, which describes itself as the leading steel producer in the region. The firm, which is based in Jubail Industrial City, has more than 3.3m tpa of long products production capacity and 2.2m tpa of flat products capacity. Recent developments in the sector include the inauguration in January 2014 of a new 600,000-tpa joint venture factory in Jubail by ArcelorMittal, the world’s largest steel-maker, and its local partner Al Tanmiah Company for Industrial and Commercial Investment. The plant, which was built at an investment cost of more than $1bn, will produce seamless tubular products and pipelines. In the aluminium sector, Ma’aden and Alcoa World Alumina and Chemicals (a joint venture between American firm Alcoa and Australia’s Alumina) are currently building an integrated aluminium complex in Ras Al Khair industrial city, at a capital investment cost of $10.4bn. Ma’aden has a 74.9% stake in the project, which it says will be the largest vertically integrated aluminium complex in the world, with Alcoa holding the remaining equity. The complex includes a 740,000-tpa aluminium smelter that began producing metal in 2012 and that has single-handedly brought
the Kingdom into the ranks of the top 20 aluminium-producing countries. The refinery will be fed by a 1.8m-tpa alumina refinery due to enter into operation by the end of 2014; in the meantime the smelter is being fed by imported alumina. The refinery in turn will use bauxite extracted from a 4m-tpa new mine at Al Baitha in Qassim Province that is due to begin production in the second quarter of 2014; a newly constructed railway line will transport the bauxite from Al Baitha to Ras Al Khair. An aluminium rolling mill is also under construction and will begin operations towards the end of 2014. The mill will produce sheet aluminium for use in the food-canning, automotive and construction industries. The new complex is part of Alcoa’s strategy to reorient its aluminium production capacity towards the Middle East to take advantage of lower electricity costs.
Outlook Heavy industry and petrochemicals are set to retain their dominance in Saudi industry for the foreseeable future, with several new large projects due to come
on-stream in the coming years. However, these projects will also expand the domestic availability of raw materials for downstream manufacturing, and there are increasing signs of interest from major foreign investors in a range of lighter, less traditional industrial segments. Whether or not expanding activity will see industry’s share of GDP rise in line with diversification targets will depend to a large extent on oil prices, and the authorities will also face challenges in turning industrial growth into jobs for nationals. However, industrial output appears set to increase substantially in absolute terms, and to become increasingly diversified, in coming years. Originally published by Oxford Business Group (OBG) in The Report: Saudi Arabia 2014, published in August 2014, Industry Chapter. For economic news about The Kingdom of Saudi Arabia and other countries covered by OBG, please visit http://www.oxfordbusinessgroup.com/ economic-news-updates GSC YEARBOOK 2015 49