Saudi-based Yamama Cement Co would offset the impact of an export ban on its earnings by investing abroad if the year-long blockage lasted longer, its top executive said.

The kingdom's third-largest cement firm is also pressing ahead with cost cuts as the ban slashed 7 percent off its sales since it was slapped in last June, Jehad Al-Rasheed told Reuters.

'When you have financial capabilities and the investment opportunities at home are locked up, you will seek to maximise returns for shareholders,' he said in an interview.

'There is a possibility for investment opportunities abroad. There are two or three opportunities under study, most of them are in the Middle East.'    

Yamama's first-quarter net profit fell 36.2 percent from a year earlier, tracking a trend across the sector due to the ban.

The envisaged direct investments, which could be announced within two years, would not be aimed at building new facilities, said Al-Rasheed, whose firm sold 4.4 million tonnes of cement in 2008. 'These are mere investments not expansion projects'.

The government barred exports after cement prices surged due to a shortage in the second quarter of 2008. The rise, combined with a surge in the prices of other building materials, such as steel, raised concern over the viability of many developments.

But massive state infrastructure projects have raised demand by 14 percent so far this year compared to a year earlier, Al-Rasheed said. This is dampening the impact of the export ban and cancellations of several mega developments by the private sector due to the financial crisis, he said.

Last month, the government allowed cement makers to export part of their surplus production provided that they sell their product at the local market for 200 riyals a tonne.

Yamama, which exported 303,000 tonnes of cement in the first half of 2008 mainly to Iraq, Sudan and Bahrain, has opted out although its inventory is now at double its level before the ban.

'The conditions put by the (commerce) ministry are not practical for a commodity whose cost is variable,' Al-Rasheed said. 'The ban has doubled the size of our inventory to two months (worth of sales).

'The price should be fixed by supply and demand. The price fixed by the ministry (10 riyals) is below its level 30 years ago. I still have in my office a government circular dating 32 years back fixing cement price at 11 riyals,' he said.

At between 9 million and 10 million tonnes, cement inventories now cover almost four months of the kingdom's annual cement needs of 30 million tonnes, he said.

 Yamama, which can produce up to 6 million tonnes per year, expects domestic demand growth to help it post higher sales in 2009 compared to 2008 despite the ban and the rise in the sector's total production capacity.

The licensing of new cement firms will maintain a situation of oversupply in the Saudi market for four years, but it is not likely to lead to consolidations, Al-Rasheed said.

'Cement firms' profits (in 2009) will be lower than last year, this is definite, because of the inability to export. Investors will flee the industry ... The culture and practice of consolidation is scarce and relatively new to this country'.

Local cement firms are planning to set up a union 'to look after the interests of the industry and consumers. The goal is not to fix prices or split the market into turfs. It will come with a governmental blessing,' he said.

'There should be a better management of the market and that cement firms make sure there is no crisis in the cement market'. - Reuters