Al-Rajhi launches $3bn steel project

22 March 2011

Industrial scheme launched in job-creation drive

Saudi Arabia’s Al-Rajhi Steel is planning to develop a $3bn fully integrated steel complex in the wake of renewed efforts by the kingdom to tackle high unemployment, a key driver behind the youth protest movement that has swept the region since the start of 2011.

The steel project, to be developed at the King Abdullah Economic City (Kaec) near Jeddah, has been planned for several years, but has only recently received a gas allocation from the government, enabling it to go ahead.

Sources in Saudi Arabia say the decision to start pushing ahead with the project after such a long delay is a sign that Riyadh is keen to start seeing more results from its efforts to create jobs. Industrial clusters, such as Kaec, are a key part of those plans.

Unemployment in Saudi Arabia is at 10.5 per cent, although in 2009 it was around 27 per cent for Saudis under 30. In the wake of anti-government protests throughout the Arab region, King Abdullah has announced huge spending plans to tackle unemployment.

“We expect to see a lot more things moving forward more quickly now as there is a feeling of greater urgency in investment plans, especially in projects that will create jobs,” says one Riyadh-based source.

Another banker in Riyadh says: “This project has been on the agenda for a few years, but there is a new impetus behind these sorts of schemes that will create jobs now.”

Middle East steel demand by country 2010
Saudi Arabia22%
Other GCC8%
Source: MBR

On March 13, Saudi Basic Industries Corporation (Sabic) and the Saudi Industrial Property Authority (Modon) said they were conducting a study into creating new industrial clusters at six sites, including Jizan, Tabuk and Hail, intended to create jobs for Saudis. The plan is to replicate the success of industrial cities at Jubail and Yanbu.

The Al-Rajhi Steel project is expected to include a 1.8 million tonne-a-year (t/y) direct reduced iron (DRI) plant that has been on hold for over a year because of the lack of a gas allocation. Now it has an allocation, it is expected to go ahead with a project that will produce a full suite of steel products.

Saudi steel projects
Al Rajhi Steel integrated complex$3bn
Arcelor Mittal/Bin Jarrallah seamless tube mill$670m
Safco/Hadeed Jubail Steel Billets facility$630m
Atoun Steel Industry Yanbu II Steel Plant$265m
Source: MEED Projects

“It has been difficult to secure any form of gas allocation on the west coast of Saudi Arabia and if you get it you need to ensure you fully utilise it,” says a steel industry source. “You need to build a fully integrated plant with a DRI, steel shop, caster and a rolling mill. This would give you the maximum flexibility.

“DRI means that Al-Rajhi can make steel exactly how you want it. If this project goes ahead, then it will mean they will become big players in the regional steel industry,” the source says. “Building a complex at Kaec means that it falls into line with Saudi Arabia’s industrial diversification plans also.”

Developing a fully integrated steel facility will cost a great deal more than the original budget for a DRI plant so other issues, such as financing the scheme, will need to be addressed. Al-Rajhi Steel is currently seeking a financial adviser to help structure the project and raise money for it. It has approached several international banks about the mandate, including the UK’s HSBC and Standard Chartered, and France’s BNP Paribas, and is planning to choose an adviser by the end of April.

Al-Rajhi Steel was not available for comment on the $3bn integrated plant when contacted by MEED.

The company is currently constructing a $213m steel plant in Jeddah that will produce about 1 million t/y of reinforcing steel bars and wire mesh that is used in the construction industry. Completion on the plant is expected in early 2012.

The company also has an 850,000-t/y billet plant in Jeddah, as well as two other smaller scale steel factories in Riyadh.

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