The decision by Brazil’s Vale to offer a share of its iron ore pelletising plant in Oman to Kuwait-based steel company Gulf United Steel Holding Company (Foulath) is a warning to any company from outside the GCC looking to set up a steel business in the region.
Worries over gas allocations in Oman are not only concerning Vale. Questions have also been asked about whether the gas agreement for the Shadeed Iron & Steel plant in the sultanate will still be valid, especially if it is an Indian company taking it over instead of Abu Dhabi’s state-owned Emirates Steel Industries.
As the region forges ahead with its massive industrial diversification plans, it is natural that even an energy rich area such as the GCC will periodically face a squeeze on certain resources. Although gas is in abundance in the Middle East, supply is not spread evenly. In fact, Qatar is the only place in the region where gas allocations are not a major concern for industrial developers.
It is not just gas that makes getting a foothold in the region difficult. Bureaucracy, land shortages, rising iron ore prices and a lack of financing options make breaking into this potentially lucrative market a struggle.
However, there are solutions on offer to any budding GCC steel producer. Inviting a strategic partner, preferably one that is state-owned, should ease worries slightly over gas. Building the plant to run on oil instead could also be an option. Vale’s worries may stem from the fact that the recent changes to the pricing mechanism of iron ore has meant that regional players will have to pay the mining giant a lot more for their raw materials, and they do not like it.
So when it comes to making others pay for natural resources Vale may have realised that although it is a giant in other markets, in the Middle East it might be still a small player.