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Saudi construction costs surge

Mar, 01 2012

(Saudi Arabia)  --  The Saudi government’s decision to ban the export of cement to prevent the shortage of cement for domestic use has resulted in a drastic increase in the costs of the building materials.

The continuing dispute between producers and Saudi Aramco is likely to further contribute to the increase in prices. Aramco has demanded cement makers use their current supplies more efficiently. The oil company can sell crude at a much higher price on the global market.

The Saudi govt. decided last week to halt the export of cement because of a shortage of the material in the Western region around Jeddah and the holy cities of Mecca and Medina. However, this move by the govt. may be defeated by the decision of Saudi Aramco to limit fuel supplies to cement producers which is expected to hurt production.

The rising price of building materials could have an impact on the major infrastructure projects planned as part of a US$ 130 billion (Dh477.5bn) public spending plan. Even commercial organisations are investing heavily in the infrastructure projects, with Kingdom Holding last year signing a 4.6bn-riyal (Dh4.5bn) deal with Saudi Binladen Group to build the world's tallest tower in Jeddah.

Al Jouf Cement, a Saudi maker of the building materials, yesterday raised domestic price 30 per cent to 260 riyals a tone.

"In the last two to three months, prices have gone up about 20 per cent year-on-year," said Farouk Miah, an analyst at NCB Capital. "Aramco is refusing to give extra fuel for cement plants, and the cement companies are concerned that a lot of supply is supposed to be coming up. If and when Aramco gives this fuel, it will ease the bottleneck."

NCB expects total cement demand of 52 million tonnes this year against current capacity of 51 million tonnes, with an expected additional increase of 4.5 million tonnes.

The increased demand has also caused transport companies and cement distributors to increase their prices to their customers.

"If there's lack of supply in new houses being built [because of increased cement prices], it could cause rising pressure and prices for existing units," said Mr Miah.

Prices for new homes in Jeddah have risen 10 per cent this month because of the higher cost of cement.

Cement production from 13 companies in Saudi Arabia grew 23 per cent to 4.8 million tonnes last month from January last year, according to data posted on the website of Yamamah Saudi Cement.

By: Rashmi Kalia (ARI-C NEWS)

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