VZCZCXYZ0000
RR RUEHWEB

DE RUEHAM #2696/01 2621041
ZNR UUUUU ZZH
R 181041Z SEP 08
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 3550
INFO RUEHAD/AMEMBASSY ABU DHABI 1247
RUEHGB/AMEMBASSY BAGHDAD 6075
RUEHLB/AMEMBASSY BEIRUT 2918
RUEHEG/AMEMBASSY CAIRO 3794
RUEHDM/AMEMBASSY DAMASCUS 3978
RUEHJI/AMCONSUL JEDDAH 0832
RUEHJM/AMCONSUL JERUSALEM 5170
RUEHRH/AMEMBASSY RIYADH 2024
RUEHTV/AMEMBASSY TEL AVIV 1334
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS AMMAN 002696 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS TO USTR 
STATE FOR NEA/ELA and EEB/TRA 
 
E.O. 12958: N/A 
TAGS: EIND EINV JO
SUBJECT: DESPITE SLOWDOWN IN CEMENT DEMAND, JORDAN'S PRODUCTION 
CAPACITY SET TO EXPAND SIGNIFICANTLY 
 
REF: A) AMMAN 2369 
 B) AMMAN 2316 
 
¶1. (U) Summary: After five years of 10-15% growth in cement demand 
and 3.8% growth in production, domestic demand for cement in Jordan 
has begun to drop due to inflation and a slow down in construction. 
Despite this trend, Jordan's annual cement production is set to 
double from 4.5 to 11 million tons over the next few years as three 
new cement factories enter the Jordanian market.  This increased 
level of output would far surpass domestic needs and will be 
difficult to sell regionally due to Jordan's comparatively high 
cement prices.  Jordan Cement with its high cost structure could 
suffer more than its new competitors and any job losses in rural 
areas will be politically sensitive.  End Summary. 
 
Two Cement Companies Currently Dominate the Market 
--------------------------------------------- ----- 
 
¶2. (U) Two companies manufacture cement in Jordan today: Jordan 
Cement (97% market share) and Arab Company for White Cement (3%). 
Jordan Cement (JC) was privatized in 2002 and is now majority-owned 
by the French Lafarge Group.  JC's CEO Salem Sousou said JC can 
manufacture up to 5.1 million tons of cement annually in two plants 
- one in Fuheis outside of Amman and one in Rashadiya in southern 
Jordan. 
 
¶3. (U) Arab Company for White Cement Industry (ACWCI) was 
established in 1982 as a private company by the Jordanian and Syrian 
governments to provide their markets with white cement.  NOTE: White 
cement is very similar in composition to traditional grey Portland 
cement but its white color means it is preferred for decorative or 
tinted work.  END NOTE.  ACWCI had four primary investors: Syrian 
Jordanian Company for Industry, Syrian National Cement Corporation, 
Jordan's Social Security Corporation, and Jordan Investment 
Corporation.  ACWCI produces 138,000 tons of white cement annually. 
 
 
After a Boom, Jordan's Cement Demand Begins to Decline 
--------------------------------------------- --------- 
 
¶4. (U) Jordan's current annual consumption of cement is near 4.5 
million tons of cement or 1,650 pounds per capita, compared to 
3,300-4,400 lbs in the Gulf.  Between 2003 and 2007, Gulf oil 
investments, as well as the arrival of Iraqis in Jordan and domestic 
economic growth led to a construction boom, which contributed to a 
10-15% increase in demand for cement and 3.8% annual growth in 
production.  Jordan consumed all its domestic production and even 
imported additional quantities to meet demand during this period. 
 
¶5.  (U) Rising inflation, however, has recently caused demand to 
slow down and production to flatten (ref A).  Sousou acknowledged 
that in 2008 JC's domestic sales have declined and as a result, it 
expects to export 551 thousand tons of excess capacity to Syria, 
Iraq, and Sudan.  He explained that most countries aim to have 
domestic supply meet domestic demand because profit margins on 
exported cement are low due to transportation costs. 
 
Three Planned Plants Could More than Double Supply 
--------------------------------------------- ----- 
 
¶6. (SBU) Samer Berekdar, Chief Executive Officer of Saudi-owned Al 
Rajhi Cement, told Econoff that for the last several years cement 
has been a very profitable industry worldwide and particularly in 
the Gulf.  He said this profitability and Gulf liquidity explain the 
large investment in new plants throughout the region, including 
three in Jordan.  Al Rajhi Cement is constructing the first factory 
expected to come online in early 2009 with an estimated annual 
capacity of 2.2 million tons of cement.  Berekdar said the factory 
will be located in northern Jordan and would operate at 50% capacity 
in its first year.  He noted that Al Rajhi has a large opportunity 
to attract customers who are eager to leave Jordan Cement for better 
service and possibly lower prices. 
 
¶7. (U) Arabian Cement Company, a Saudi firm, is currently 
constructing a $110 million factory in Qatranah about 55 miles south 
of Amman.  The new plant is expected to begin operations in late 
2009 and could produce 2.2 million tons of cement annually.  Salem 
Al Zaben, CEO of Al Hasa, said his Jordanian company is also seeking 
 
to begin construction of a cement factory in central Jordan. 
 
¶8. (SBU) Sousou said that if all three plants are built, there will 
be a glut of cement in Jordan, with annual output increasing from 
4.5 million to possibly 11 million tons per year.  Both Sousou and 
Berekdar concurred it is very unlikely that Jordan would ever 
require 11 million tons of cement annually.  Furthermore, similar 
growth in cement production regionally would make Jordanian exports 
less competitive, especially given Jordan's high energy costs and 
thus high cement prices. 
 
Energy and Environmental Concerns 
--------------------------------- 
 
¶9. (SBU) Energy accounts for 70% of cement production costs, 
including quarrying, processing, and transportation.  Al Zaben and 
Berekdar both said that cement plants can run on several types of 
fuel, including natural gas, heavy fuel oil, petroleum coke, oil 
shale, and coal, and that the process to switch energy sources is 
relatively easy.  During their planning phases, both companies were 
promised access to Egyptian natural gas, the cleanest energy source, 
but Berekdar said GOJ made too many promises regarding natural gas 
it cannot fulfill.  He elaborated that Jordan now does not import 
enough natural gas for power stations let alone for industrial use. 
 
 
¶10. (SBU) While Jordan Cement operates using heavy fuel oil, 
Berekdar said that his company has received permission to operate 
using coal which is cheaper.  Al Zaben said that his factory has not 
yet received an environmental waiver that would allow him to operate 
using petroleum coke.  He believed the delay was due to the 
controversies surrounding JC's Fuheis plant which he described as an 
"environmental disaster," an accusation JC disputes.  Al Zaben 
clarified the Al Hasa plant would be located much further away from 
a population center than the Fuheis plant.  JC Fuheis Plant Manager 
Hani Salah said JC would also prefer to operate using cheaper coal 
or petroleum coke, but has not received permission. 
 
Comment 
------- 
 
¶11. (SBU) Jordan's cement industry could be damaged in the next 18 
months as a victim of its own success.  Cement and construction are 
cyclical businesses and Jordan is at the beginning of a downturn, 
with slowing residential construction.  While Jordanian economic 
growth from 2003 to 2007 and Gulf liquidity may have justified some 
additional cement production capacity, Jordan's market cannot 
consume 11 million tons of cement.  The future glut will lower 
prices and profits, especially as other Gulf-funded plants come 
online in neighboring Syria and Saudi Arabia.  Jordan Cement which 
has a higher cost structure than the new factories will likely 
suffer first and most, with falling profits and job losses.  The new 
factories will also need to operate on smaller profit margins than 
the 22% currently earned and used as part of their feasibility 
studies.  Any job cuts will be sensitive since these new cement 
factories were located in rural areas where unemployment is the 
highest and where the government is most eager to see economic 
growth. 
 
Visit Amman's Classified Website at 
http://www.state.sgov.gov/p/nea/amman/ 
 
BEECROFT