The Middle East and North Africa (Mena) region is starting to emerge as a significant centre for steel production, as robust demand firms up the economic case for investment in local manufacturing capabilities. According to regional projects tracker MEED Projects, there are more than $30bn-worth of steel-related schemes planned or under way in the region.

Steel demand in the region is forecast to increase by 6.7 per cent in 2013, following a rise of 4.9 per cent in 2012, according to the World Steel Association (Worldsteel), a Brussels-based industry body representing global producers.

Promising outlook for steel demand

Regional steel demand is being driven by investment, construction and infrastructure developments. An acceleration in Qatar’s infrastructure building in preparation for hosting football’s Fifa World Cup in 2022 is fuelling demand in the GCC. The country’s $35bn integrated rail project, which includes long-distance passenger and cargo lines, light railways and the Doha Metro, alone is expected to require 800,000 tonnes of steel.

Meanwhile, in Iraq and Libya, steel demand is being driven by reconstruction activities financed by increasing oil income and which are proceeding at an impressive pace.

US industry consultants Frost & Sullivan forecasts the Middle East’s construction sector will expand at an annual rate of 3.5 per cent until 2015, surpassing growth rates in European and North American markets.

According to Frost & Sullivan, finished steel product demand in the Mena region is forecast to total 85 million tonnes by the end of 2013, while crude steel production is projected at 50 million tonnes. Apparent steel usage in the Middle East increased from 34 million tonnes in 2005 to 48.1 million tonnes in 2011, representing a compound annual growth rate of nearly 6 per cent. 

Steel demand in the region is growing at a significant pace thanks to the various ambitious government plans

S Venkatesan, Frost & Sullivan

“The long-term outlook for the steel industry in the Middle East is very promising due to ambitious economic development plans by governments,” says S Venkatesan, director, metals and minerals practice, Frost & Sullivan. Analysts say the GCC is the most attractive market for investment in new steel projects.

Industrialisation programmes in the GCC aimed at diversifying economies and generating employment opportunities have led to the creation of industrial cities and technology parks. Demand is also coming from infrastructure and social housing projects. Saudi Arabia, for example, is committed to building 500,000 new homes and has major plans for new roads, a railway network and airports projects, all of which will require millions of tonnes of steel.

“Steel demand in the region is growing at a significant pace thanks to the various ambitious government plans related to the construction and infrastructure sector,” says Venkatesan.

At present, most of this demand is met through imports. The Mena region is one of the biggest importers of steel in the world, absorbing 40 million tonnes in 2011. Much of the demand comes from the GCC.

The value of net imports of iron and steel products into the GCC countries totalled $8bn in 2011. According to Frost & Sullivan, about 40 per cent of regional steel demand is met locally, while the rest is imported mainly from Turkey, Ukraine, the EU, Russia and China. Long products, which are predominantly used in the building and construction industry, account for 34 per cent of total imports.

Import substitution is one of the key tenets behind the GCC’s industrialisation drive and with rising demand, steel production is an obvious area for investment.

Regional steel output

Crude steel production in the Middle East totalled 24.2 million tonnes in 2012, up 5.3 per cent on the year before. Iran increased its output by 1.5 million tonnes to 14.5 million tonnes and is the largest producer in the region.

Egypt is the second-largest and its output totalled 6.6 million tonnes last year. Saudi Arabia produced 5.2 million tonnes of steel in 2012, while Qatar produced 2.1 million tonnes. Steel production in Africa and the Middle East accounted for 2.6 per cent of the world total.

A series of major steel projects are planned and under way in the region. In Bahrain, United Steel Holding Company (Foulath) is building a new steel mini-mill at a complex at Hidd. Located next to the main 1.5 million tonne-a-year (t/y) direct-reduced iron (DRI) plant and currently being commissioned, the mill is a joint venture of Foulath and Japan’s Yamato Kogyo Company. The scope of the new plant includes the construction of a 750,000 t/y steel shop with a 600,000 t/y long rolling mill, with full commissioning due this year. 

In Abu Dhabi, Emirates Steel is set to start construction on the phase 3 expansion of its steel complex in Mussafah. The scope of works will include the construction of a DRI plant, a steel-melting plant, a thin slab caster and a continuous strip-rolling mill, with a capacity of 1.4 million t/y. 

One of the largest projects planned in the GCC is Al-Rajhi Steel Industries’ steel plant at King Abdullah Economic City in the kingdom’s Western Province.

However, the proposed $3bn steel complex has encountered problems, with the company rejecting commercial and technical bids for the engineering, procurement and construction packages, as they exceeded the original budget. The scope of works includes a DRI plant with a capacity of 1.8 million t/y.

Beyond the GCC

Investors in the region are also using their financial muscle to build capacity outside the GCC. One example is the Qatar-backed Bellara integrated steel complex in Jijel, northeast Algeria. Qatar International has formed a joint venture with Algerian steel group Entreprise Nationale de Siderurgie (Groupe Sider) and Fonds National de l’investissement to build a 5 million t/y steel plant in Jijel.

Algeria, with its abundant gas resources, is a growing focus for investment. The world’s largest steel producer, Luxembourg-based ArcelorMittal is in talks with the Algerian government about expanding the capacity of the 1 million t/y Annaba steel plant it operates in northeastern Algeria.

Iraq will also figure more prominently, with steel demand averaging 8 million t/y. Last month, Iraq’s Industry & Minerals Ministry was reported to have signed a $700m agreement with Turkey’s UB Holding to revive shuttered steel plants in Basra. Under the agreement, the Turkish group will supply the plants with equipment and build new production lines with a total capacity of 440,000 t/y over the next three years.

An abundance of power and natural gas at reasonable prices has [driven] increased steel production

S Venkatesan, Frost & Sullivan

Pricing remains a challenge for the steel industry, however. According to Venkatesan, the increase in raw material and energy prices is forcing global steel producers to operate at considerably lower profit margins, making them use their resources more judiciously, securing raw material along with enhancing their product mix.

“The fundamental benefits of producing steel in the Mena region are unchanged. An abundance of power and natural gas available at reasonable prices has been the key driver for increased steel production in the region, through the expansion of existing capacities, as well as greenfield projects,” he says.

“The energy advantage is expected to help in easing the pressure on steel prices, so the producers can have a competitive edge and [secure] their long-term sustainability in the market.”

Competitive steel market

Mena steel producers face a further challenge, in that they do not have easy access to world-standard local engineering services with which to upgrade their existing plants to meet future market demand.

The comparatively rapid growth of the steel industry in the region imposes challenges on regional players, says Venkatesan. They need to consolidate their position as producers and improve their ability to compete and continually improve efficiency by focusing on capacity utilisation and cost control. Above all, they must start production of value-added downstream products, such as the special alloy, silicon steel.

The regional steel market will become much more competitive as it is considered one of the most open and attractive global markets for major producers.