JEDDAH: Yanbu Cement Co. plans to spend SR1.5 billion ($400 million) to raise its production capacity by 48 percent by 2011, its top executive said.
At its current output capacity of 4.2 million tons, Yanbu was not affected by a year-old ban on exports as the volume it produces is absorbed by local demand, Chief Executive Saud Islam told Reuters in an interview.
But the firm will consider exporting once it had additional output because a growing local surplus is hitting prices.
The expansion, which will be funded by the company and a loan from the National Commercial Bank (NCB), will increase Yanbu’s production capacity to 6.2 million tons a year.
“If the local demand does not take all of our production we will export,” Islam said late on Sunday.
“We are not affected by the ban but we will be affected by it in the future (if the ban is extended) ... when the surplus starts,” he said, adding that he expects the government to lift a yearlong ban on exports before the planned expansion is completed.
The Saudi government banned cement exports in June 2008 to force prices down after a plethora of giant projects rolled out in Gulf Arab states sent demand soaring and encouraged Saudi cement firms to seek more lucrative export deals.
Cement prices peaked at SR23 per bag of 50 kg (110 lbs) in Saudi Arabia a year ago. The export ban has prevented most Saudi cement firms from matching record 2007 profits in 2008.
After peaking at SR661 million in 2007, Yanbu Cement’s net profit fell 15 percent in 2008 after the export ban was implemented, resulting in a supply glut and bringing down prices to as low as SR12 per bag.
“This (was) a short term phenomenon due to a spike in demand and the diversion of some local supply to export,” Islam said.
“Profits will never be the same (as in 2007) but ... We are doing our best to maintain a reasonable profit.”
The Saudi Consumer Protection Association has said that the current price was profitable for cement companies.
Saudi cement production capacity is expected to reach 45 million tons this year while demand will not exceed 33 million tons, cement industry executives said.
