Jubail buy will put Sulb ahead

12 October 2010

Sulb has catapulted itself ahead of its rivals, whose expansion plans are years away from actual operation

Steel producers around the Middle East have grand ambitions. Turning them into a reality often proves more troublesome.

Bahrain’s United Steel Company (Sulb) has made a significant leap forward in its ambitions with the planned acquisition of the United Gulf Steel (UGS) rolling mill plant in Saudi Arabia’s Jubail industrial area. The deal will help Sulb add 450,000 tonnes a year to its production, and diversify its product range.

No details have emerged on the price that Sulb will pay for the Jubail plant, but Sulb’s managing director Khalid al-Qadeeri has undoubtedly secured an attractive deal. Especially given the difficult financial situation of the UGS plant, which has been forced to cut production to save money.

Sulb will be able to significantly improve the UGS business by importing steel billets from Bahrain, at a much lower cost than the Turkish exports the plant has been using. It will then be in a good position to start selling into the Saudi Arabian market, the most attractive market in the region and one already facing constraints in the supply of steel.

By acquiring an existing plant, Sulb has also catapulted itself ahead of its rivals. Several other regional steel projects and expansion schemes are still years away from being able to start production. In fact, Sulb now has the production capacity it planned to develop as phase two of its Bahrain plant before it has completed construction of phase one. It is now potentially three years ahead of its development schedule.

Turning around the UGS plant may not be easy, and as more and more capacity is developed in the region, competition will intensify. First-mover advantage will be key to long term survival. Sulb has made the right move by taking an aggressive step to put itself ahead of its rivals.

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