Iraqi cement round-up

Iraq has a troubled past that has adversely affected its development for decades. The country now needs foreign investment to (re)develop its cities and wider infrastructure that have seen under-investment for years. Subject to an increasingly stable political situation, the country is likely to be a hot-bed of development, with oil reserves among the highest in the world. Now that the last US military personnel have left the country, has the time come for Iraq to fully exploit its development potential? The cement industry will have a major role to play if it does.

The Republic of Iraq has never been far from the news headlines in the past 30 years. Under the Ba'athist dictatorship of Saddam Hussein it waged war against its neighbour Iran (1980-88) before invading Kuwait in 1990, sparking the original Gulf War (1990-1991).

Throughout the 1990s and early 2000s Hussein increasingly taunted the international governments that claimed the country was developing 'weapons of mass destruction' (WMD). UN weapons inspectors were finally admitted to the country in 1998, the same year that 'regime change' for Iraq became official US foreign policy.

The election of George W Bush as US President in 2000 caused another escalation in international hostility to Iraq, especially post 9-11, and in 2003 the US, the UK, Australia and Poland invaded Iraq, decisively toppling Hussein in just 21 days. Ultimately the inspectors found no indication of supposed WMD.

Current situation

Although it rid the country of a dictator and gave rise to a democratically-elected government, the US-led invasion also gave rise to guerilla attacks against civilian and Allied targets and sectarian violence that continue to today. This has greatly destabilised the country over the past nine years. Despite winning the war against the old Iraqi powers, it was not until late December 2011 that the final US military personnel finally left the 'new' Iraq.

The country is in desperate need of rebuilding and new development, which it will likely be able to fund with its massive natural oil wealth. Iraq has the third largest official oil reserves in the world, with estimated reserves of 143 billion barrels. Speculative results from 2011 have led the government to claim that it has the largest reserves in the world.

It can be seen from the graph on page 54 that despite Iraq's current GDP/capita (by Purchasing Power Parity) changing wildly since 1981, it is now at a level similar to that seen in the 1980s. In the 1980s it could not improve because the regime pushed resources into its war with Iran. The Gulf War proved more damaging, with the resultant UN sanctions preventing any meaningful development throughout the 1990s. Since the 2003 US-led invasion the GDP/capita rate has increased once more. Estimated data for 2011 based on a growth forecast of 9.6% indicate that this level is likely to be exceeded in the first half of the current decade.

Cement industry - History

The Iraqi cement industry began over 50 years ago with the establishment of the Badoosh cement plant in 1955. In 1963 the Hammam Al Ali I plant was added. In the 1970s and early 1980s many more plants were established. The last of these were at Qaim, which began producing in 1988, and the Sinjar plant, which did not reach its peak output until 1990. Until 2003 all of the plants were run by the state. Many were poorly utilised, although Iraq briefly exported cement in the mid 1980s.

After the US-led invasion in 2003, the cement sector split into two segments, the former state-run plants on one side and new private operators. Lafarge acquired two plants post-2003 and commissioned its own greenfield project in 2008. Other private operators include the Al-Rawi group, which operates three plants and MASS Global, which commissioned its first kiln at Sulaimania in 2010 and a second in 2011. Also under private ownership is the Sinjar Cement Plant, owned by a consortium of family members.

Cement industry - Present

Due to a long term under-investment and insufficient electrical supplies, Iraqi cement plants don't currently produce anywhere near their intended design capacities, which come in at over 25Mt/yr when combined. The estimated combined capacity of the plants that are currently able to operate is around 10-11Mt/yr.

There is a massive drive towards refurbishment at older plants and new projects that is being driven by the high profitability of the Iraqi cement industry and Iraqi cement compared to imported cement. In July 2011 Iraqi cement cost US$58/t to produce but was being sold at US$90-120/t. Foreign cement imports could fetch as much as US$160/t such was the level of demand for building materials for redevelopment.

It is clearly a 'no-brainer' for private operators to increase their cement capacity in Iraq by whatever means necessary. This has led to a great number of refurbishment projects at the older sites, especially in the north of the country, where the political situation is more stable.

The estimated cost to rehabilitate the existing cement plants alone in Iraq is approximately US$175m. The estimated cost of captive power plants to run the expanded capacity almost doubles this to around US$325m.

One ongoing renovation, currently being carried out at the Sinjar Cement Plant with Austroplan Engineering and Perkam Dis Ticaret Ltd Sti. acting as consultants, is described in detail on pages 58-59.

Table 1: Summary of key industry indicators for Iraq

Table 2: Summary of integrated cement plants in Iraq. Source: Multipower International.

Cement industry - Natural advantages

There is a large amount of work to be done to optimise the Iraqi cement industry but the situation is moving rapidly. The country is fortunate to have a large supply of oil with which it can buy-in foreign equipment and services. The country also has an abundance of two major cement ingredients, limestone and gypsum. Limestone is found throughout the country in several bands that run from the north west to the south east.

In addition to having a lot of limestone, it is also of unusually high quality, in that it has a very high percentage of calcium carbonate (CaCO3). This means that more cement can theoretically be produced per tonne of limestone, enabling more efficient production. Much of the limestone is also close to the surface, allowing low-cost mining practices.

Cement industry - New plants

There are currently three new plants under construction in Iraq. These are being carried out at Diwanyah and Al Mabrouka, both of which are due for commissioning in 2013. GRD Cement is also in the process of building a plant for 2013. Additionally MASS Global will add a third kiln at its plant in Sulaimania in 2013.

These projects, in combination with the countless upgrades and expansions at other plants will add an anticipated 17Mt/yr of cement capacity by 2015. This will remove Iraq's current dependency on foreign cement, lowering the cost for consumers and enabling investors to get a rapid pay-back on their initial investment.

Conclusion

When Iraq acquires the latest technology, its current economic situation and unique set of natural advantages should enable it to gain an advantage in terms of cement production compared to its neighbours.

With sufficient upgrades and a more stable future, Iraq will easily be able to meet domestic demand and export surplus production, either by road, rail or by sea, as it did in the 1980s. The present stumbling blocks include political instability, irregular fuel supplies and outdated cement plant infrastructure.