Saudi Arabia's domestic steel production capacity will rise by at least 50 per cent within the next three years, a senior government official said on Monday.

Saudi Arabia's steel production capacity stands at about 8.4 million tonnes and authorities have imposed restrictions on exports of both the commodity and scrap metal due to tight supply in the domestic market.

'I expect production capacity at national plants to rise more than 50 percent in the coming three years,' Khaled Bin Mohammad al-Suleiman, undersecretary at the Commerce and Industry Ministry, told Reuters.

State-controlled Saudi Arabian Basic Industries Corp (Sabic) accounts for about half of domestic production capacity with its Hadeed subsidiary.

The output increase would come from expansion at Hadeed and at privately owned rivals al-Ittefaq Steel Products Co and Al-Rajhi Steel, he said. 'Currently supply is still a bit higher than demand,' he added.

Saudi Arabia, the largest Arab economy, imposed a ban on steel exports last year to protect local consumers in the kingdom as domestic prices of the metal doubled partially on growing demand from neighbouring countries.

The ban, which was enforced at peak prices, has hurt local steel makers' margins because it was followed by a rapid slide in global commodity prices due to the economic slowdown.

But government spending, fuelled by reserves accumulated from oil exports, helped the manufacturers to better cope with the repercussions of the global crisis.

In the five years to 2013, the government will spend $400 billion from oil revenues to develop infrastructure as well as build new schools, railways and universities.

Suleiman also said he expected Saudi cement production capacity to rise 19 percent to at least 50 million tonnes by the end of 2010.

'Demand for cement in the domestic market increased from 30 million tonnes in 2008 to 35 million tonnes in 2009,' he said.

Saudi Arabia has recently lifted a ban on cement exports it imposed in June 2008. The ban was also aimed at forcing prices down after large infrastructure projects and demand from abroad spiked prices.

The ban coincided with capacity expansions that saturated the local market pushing prices and profits of many firms down.

'It was not a ban, but restrictions and three firms are now exporting cement. The priority for the ministry and for Saudi Arabia in general is to meet the needs of the domestic market, and we would welcome any available surplus to be exported,' Suleiman added.
-Reuters