A new wave of metals investment

28 November 2011

Focus on infrastructure construction is expected to boost steel and aluminium demand


A series of large projects, worth more than $8bn, is due to be awarded or tendered next year in the region’s metals industry

Source: MEED

After a relatively slow 2011, the region’s metals sector is expected to become active again with a series of large projects worth more than $8bn due to be awarded or tendered next year.

Qatar Steel should be the first company in 2012 to make an announcement. It is almost ready to award the engineering, procurement and construction contract for civil works, steel erecting and utilities for its $500m expansion. Work is scheduled to start on the 1.1 million tonne-a-year (t/y) plant in January.

In December, Qatar Steel signed a $250m loan deal with the local International Bank of Qatar and Union National Bank for the project, which is due to be completed in 2013. Earlier, in March, Qatar Steel awarded Austria’s Siemens Steel a contract to provide equipment for the plant, including an arc furnace, ladle furnace and a high-speed billet caster. The engineering and fabrication will be carried out in Austria.

World Cup spending

The company is also looking to resurrect a $1.3bn expansion project that was pulled from the financing market in 2007, as the global banking crisis hit appetite for project lending. Qatar is about to embark on a massive infrastructure construction programme in preparation for hosting the Fifa World Cup in 2022, which will boost demand for steel in Qatar.

The on-off saga of Abu Dhabi’s Emirates Steel phase three project continues, but it should be tendered by 2012. Italy’s Danieli remains the favourite to win the $1bn project, but it will face a still challenge from Germany’s SMS Group and Siemens Steel.

Emirates Aluminium (Emal) should also finish tendering phase two of its smelter in Abu Dhabi. The expansion will double the capacity to about 1.3 million t/y and will cost about $4.5bn.

Although Emal’s expansion is going ahead, the same cannot be said about the proposed metals park located near the smelter. No progress is expected during 2012 for the rolling mill, extrusion plant and wire rod mill that were planned for the site.

Despite rising demand for steel, a lack of power in Iraq means that many metals projects are being delayed there.

Iraq projects

Yet, the Basra steel rehabilitation project may be tendered in the third quarter of 2012. The Kurdish region will also witness the tendering of mini-mills projects and construction should start shortly after.

The large amount of scrap metal available in Iraq means that if sustainable power sources can be found, a robust steel industry could flourish, However, this is unlikely before 2013-14.

Saudi Arabia still has a domestic shortfall of steel and several large projects are planned to plug the gap. The most interesting by far is the local Al-Rajhi Group’s $3bn fully integrated steel complex planned for King Abdullah Economic City near Jeddah.

State-owned energy firm Saudi Aramco has given Al-Rajhi until the third quarter of 2012 to sort out the project’s financing and make a final investment decision. Some fast-track contract awards, tie-ins with a number of high-profile technology providers and a mad rush to get all the contracts signed on time can therefore be expected.

The kingdom’s ambition of becoming a integrated aluminium producer will also take a step towards being realised next year. In 2012, joint venture partners Saudi Arabian Mining Company (Maaden) and the US’ Alcoa will tender the construction contract for an alumina refinery at Ras al-Khair on the eastern coast.

Aluminium development

In October, the partners reached financial close on a $3.6bn deal to finance the second phase of their $10.8bn integrated aluminium development – the bauxite mine and alumina refinery.

Construction is already under way on a 740,000 t/y smelter and a 380,000 t/y rolling mill. The railway that will transport bauxite to the refinery from mines in the north of the country was completed in 2011.

In terms of demand for metals, the outlook for the global steel industry is positive, with consumption set to strengthen in the year ahead in most regions, although it will not reach the peak seen in 2007. According to the World Steel Association, steel usage in the Middle East and North Africa region has fallen by about 0.9 per cent in 2011, mainly due to the recent political uprisings, which caused projects in North Africa to stall. The association predicts that high oil prices will see steel use in the region increase by 8.7 per cent in 2012 as governments push ahead with infrastructure construction.

The long-term outlook for the aluminium sector is positive, with demand from India and China driving consumption of the metal. But in recent months, aluminium prices have fallen due to concerns about the impact of the Eurozone debt crisis on demand. The London Metal Exchange three-month aluminium price has fallen to $2,100 a tonne in December from its peak of $2,800 a tonne in May. This means that many producers in Europe are now operating around or below break-even level.

This will not deter Middle Eastern producers, with their access to low-cost energy and the region’s demand for aluminium projected to grow over the long term. Hence, investing in new regional facilities still makes sound economic sense.

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