The local Al-Rajhi Steel’s planned $3bn steel complex is in danger of being put on hold or even cancelled, according to executives working in the region’s steel industry.

MEED reported in January that officials at Al-Rajhi Steel had rejected the commercial and technical bids for the engineering, procurement and construction (EPC) packages. The bids were vetoed because they surpassed the budget the company had planned for the complex, at King Abdullah Economic City (KAEC) near Jeddah.

Now the situation regarding the scheme is unclear and speculation is mounting that it may have to have the scope significantly reduced, shelved or cancelled completely.

“It has now been a few months [since the bids were rejected] and still no one seems to know what is going on at Al-Rajhi,” says a steel industry source based in the Middle East. “Whether the project still has a gas allocation is unclear and if it does go ahead, the original scope is very unlikely to what actually gets built.”

The original scope of works for the Al-Rajhi complex included a direct-reduced iron (DRI) plant producing 1.8 million tonnes a year (t/y) of steel, two steel shops produce billets, blooms and slabs, a mill producing long products and a mill producing flat products, as well as a cold-rolling process plant.

The project was due to be the anchor tenant at KAEC and had been fast-tracked since it secured gas in 2011. Prior to that, progress had been slow due to a lack of feedstock. 

The scheme secured a rare gas allocation from the Petroleum and Mineral Resources Ministry on the premise it would be built in one phase and that construction would start by the end of 2012. Finance was also expected to be secured within that time frame. 

“You can imagine that many people are frustrated by the whole situation,” says an executive from an international contractor. “A lot of time and money was spent by all the bidders, especially as everyone had to form consortiums with technology providers.”

The lack of activity at A-Rajhi leaves the GCC’s steel projects sector with a $3bn gap. Due to a lack of activity elsewhere in the regio, it is unlikely steel plant manufacturers and international contractors will have that much work to bid on in the next two years.

“I cannot see any other project being initiated that will even come close to Al-Rajhi, except the project Qatar Steel is planning for Algeria,” says the steel industry source. “I also think building a complex in one phase was unprecedented and unlikely to be attempted in the region again. So even if projects do come up, the budget will be nowhere near $3bn.”

According to the Middle East projects tracker MEED Projects, there are currently $16bn-worth of steel projects at the study, design, engineering and tender phase. However, many of these schemes are either hugely delayed or unlikely to be executed in the near future.

Steel projects that have stalled include several schemes in Egypt an in the GCC, the UAE’s Emirates Steel Industries has not yet made a decision regarding which companies are going to build its planned phase three expansion. The company recently said was moving the project from Mussafah, which will further delay the scheme.   

MEED reported in early April that despite the lack of activity in the steel projects sector, the rate of growth in steel demand in the Middle East and North Africa (Mena) region is expected to increase in 2013-14.

The increase will be driven by reconstruction projects in Iraq and post-revolution Arab countries.

The World Steel Association has said demand in the Mena region will increase by 3.2 per cent in 2013 to 65 million tonnes.

Excluding North Africa, the Middle East consumed 49 million tonnes of steel in 2012, but only produced 24.2 million tonnes. Middle East consumption is expected to grow by 0.8 per cent in 2013 and by 6.1 per cent in 2014.