The two major steel production hubs in the Middle East and North Africa (Mena) region have historically been Iran and Egypt, but project activity is shifting the industry’s focus to the Gulf.

As the GCC construction sector has grown over the past 15 years, steel plants have been commissioned and developed steadily in phases. The Emirates Steel Industries (ESI) plant in Abu Dhabi and the Qatar Steel Company (Qasco) complex at Mesaieed are examples of this trend. In the past three years, many more facilities have been planned in the GCC.

Such is the demand for rebar in Saudi Arabia that quieter neighbours have been able to sell into that market

UAE-based steel industry source

Regional projects tracker MEED Projects lists more than $18bn-worth of steel plants at the study, design, tender or execution stage in the GCC. This figure reflects predicted growth of 10-15 per cent over the next five years in demand for reinforcement bars (rebar), used in the construction sector.

However, not all GCC countries have seen the same growth. Demand for steel is strong in some markets and stagnant in others.

Saudi Arabia’s steel shortfall

Saudi Arabia leads the way in project activity with eight major steel projects worth $7.5bn either under execution or planned in the next 12 months. The number of steel plant schemes in the kingdom reflects the domestic shortfall in several key steel products as well as a concerted effort by Riyadh to diversify Saudi Arabia’s industrial base.

Riyadh is committed to building 500,000 new homes and has major plans for new roads, railways and airports projects, all of which will require millions of tonnes of steel. There is also an unprecedented capital expenditure in downstream oil, gas and petrochemicals schemes across the kingdom.

To build such a massive complex in one phase is pretty much unprecedented anywhere in the world

Steel industry source based in the Middle East

“There are major shortfalls in a number of key products in the kingdom, especially semi-finished products such as billets,” says a steel industry source based in the UAE. “With so much going on in the kingdom, it is going to need more domestic production.”

Saudi Arabia currently imports most of its billets from markets such as Turkey, the Commonwealth of Independent States (CIS) and China. Mills in the kingdom then re-roll these into finished products such as rebar.

“Such is the demand for rebar in Saudi Arabia that some of its quieter neighbours, such as the UAE, have been able to sell into that market,” says the source. “And recently the kingdom dropped import tariffs on rebar from outside the GCC.”

The temporary lifting of import tariffs is a significant development for Saudi Arabia, as the region’s industry has always had to fight off competition in the form of cheap imports of steel products, especially from Turkey.

The price of rebar in Saudi Arabia is fixed at $773 a tonne, while rebar in the UAE is currently trading at $690 a tonne. This makes the kingdom’s market attractive to UAE producers.

However, $773 a tonne is the price charged by distributors; producers will have to sell rebar for less.

The kingdom’s rebar price may be high for 2012, but profit margins are tight because many producers buy billets on the international market. This makes it vital for plants with larger capacities to fully utilise their economies of scale.

The March 2012 price for billets exported from the CIS into Saudi Arabia was $660-680 a tonne, meaning rebar producers cannot make more than $100 a tonne on finished products.

“Any volatility in international steel prices could prove to be catastrophic for the kingdom’s rebar producers,” says the UAE source. “This is why companies are now trying to lengthen their supply chains to incorporate as much of the steel-making process as possible.”

Steel industry moving upstream

Extending the value chain is vital in today’s steel industry, so companies are moving as far upstream as possible. Creating their own steel by building direct-reduced iron (DRI) plants and billet casters gives producers far more flexibility and means they are less reliant on the vagaries of the international steel market. Building plants with this capability requires large amounts of gas feedstock and capital expenditure. 

The most ambitious of the planned Saudi projects is the $3bn Al-Rajhi Steel complex at King Abdullah Economic City near Jeddah.

The scope of works for the complex, one of the largest in the world, will include a DRI plant with a capacity of 1.8 million tonnes a year (t/y) of steel; two steel shops producing billets, blooms and slabs; a mill producing long products; a mill producing flat products; and a cold-rolling process plant.

Gas allocations for large projects in the kingdom are quite rare at the moment due to a tightening of the gas market, so receiving one for this project is a coup for Al-Rajhi.

However, Riyadh has attached several caveats to the allocation: the company has to fast-track the scheme into one phase, as well as putting financing in place and awarding construction contracts by the third quarter of 2012.

“This project has the sort of timeline that will probably never be witnessed again in the region,” says a steel industry source based in the Middle East. “To build such a massive complex in one phase is pretty much unprecedented anywhere in the world, not only this region.”

Another caveat attached to the Al-Rajhi project dictates the product mix the complex will produce. The majority of its output will be tailored to the domestic construction industry and will include billets, rebar and wire mesh.

Al-Rajhi currently dominates the GCC’s steel projects sector, as international technology providers and contractors line up to bid for work at the plant. But the project is not the only large-scale steel scheme in Saudi Arabia; several other projects are also planned. Many of these facilities will produce semi-finished products and will be strategically located in areas with high unemployment and no local steel supply, such as the 500,000-t/y rebar mill located at Jizan Economic City in the south of the country.

The 600,000-t/y steel tube and pipe mill under construction at Jubail in the Eastern Province is another major project. It is a joint venture between the Luxembourg-based ArcelorMittal and the local Bin Jarallah Group. The mill will be finished by the end of 2012 and two-thirds of its capacity will be used to manufacture oil-country tubular goods for Saudi Aramco.

Bahrain’s steel centrepiece

Saudi Arabia may now be getting the most attention in the region, but neighbouring Bahrain has been developing its steel industry over the past half decade. It has opened several plants in the past few years, but it is the $1.3bn Hidd mill that will be the centrepiece of its steel industry.

The Hidd mill will produce 1.5 million t/y of DRI and will boast an 11 million-t/y melt shop and heavy rolling mill when finished. Commissioning will be complete in 2013.

With such close proximity to the Eastern Province of Saudi Arabia, Bahrain’s steel industry is well positioned to feed a growing market, especially Jubail Industrial City. The country produces a diverse range of steel products, from iron pellets used in the steelmaking process to stainless steel sheeting. A mini-mill will be built alongside the Hidd mill.

In the UAE, the low rebar prices reflect demand and this is unlikely to change significantly for the rest of the year. ESI is the major producer in the UAE and has now fully commissioned its phase 2 expansion and also has phases 3 and 4 planned, which will cover most of the projected increases in consumption. 

“The UAE steel industry has still not recovered enough to get even remotely close to the boom years of 2006-08 in the Dubai construction industry,” says the steel source. “And with cheap imports coming in from Turkey, this is unlikely to change either.”

In Qatar, there is scope for an increase in production and Qasco is planning a $500m expansion at its facilities in line with the projected growth in steel consumption that will come from the country’s preparations to host the 2022 football World Cup.

Most major steel fabricators are based in the UAE and Saudi Arabia, and they will be expecting a major surge in demand when infrastructure projects start to move ahead. The GCC steel market is growing, but it is key markets such as Saudi Arabia and Qatar that will develop fastest over the next few years.