Like most companies, Al-Jazeera Steel has had to endure very challenging trading conditions in 2009, as reflected in its half-year results. The collapse in hot-rolled coil steel prices left the company with an inventory of costly raw materials, which it was unable to recoup through sales. From selling at about a 25 per cent profit margin in May and June 2008, Al-Jazeera traded at more than 30 per cent below the cost of production in February and March this year.

The company was similarly caught out in 2005, when steel prices also crashed, as China switched from being a major steel importer to an exporter. The firm has responded to this latest downturn with improved inventory controls and salary reductions for staff, but has avoided making redundancies.

Prior to the global financial crisis, Al-Jazeera Steel had been enjoying a period of strong growth, brought about by the improved processes implemented following the share sale to Global Buyout Fund and strong demand for its products. In 2008, the company achieved record sales, both in terms of value and tonnage, despite a poor final quarter. It is well positioned to continue to along this path once a global economic recovery sets in.

The prices of steel and steel products have firmed up over the past couple of months, but price volatility will always be the biggest threat to Al-Jazeera’s business and strict inventory control is key to protecting itself from price fluctuations.

As a private equity vehicle, Global Investment House generally exits its investments after four to six years, so a further ownership change can be expected. In September 2008, before share markets crashed worldwide, GIH’s subsidiary, Global Buyout Fund, estimated its gross internal rate of return from its investment in Al-Jazeera Steel would be 145.3 per cent.