Outlook positive for Middle East steel

22 January 2009

The collapse in global commodity prices has cast a shadow over the regional steel industry. Here we present a white paper of MEED Insight’s report, free to registrants.

As of November 2008, projects valued at almost $3 trillion were planned or under way in the Gulf. But with the credit crunch taking hold and the oil price collapsing, the big question for the steel industry is how many of these schemes will now proceed and over what timescales.

Given that a swathe of projects, especially in the key market of Dubai, have been put on hold or even cancelled the outlook for real estate projects, which make up almost two thirds of the total, is mixed over the coming two years, while prospects for infrastructure schemes are brighter.

In terms of new contract awards, 2009 is likely to deliver the lowest volume for five years, while there should be a pick-up in 2010.

With high stockpiles, particularly in the UAE, and slackening demand, steel prices are expected to remain subdued in 2009 in the range of $500 a tonne. This would be a third of what they were at their peak in mid-2008, but a slight increase on their recent lows recorded in November 2008.

With global steel demand weak and the Middle East a major importer of semi-finished products, the region is likely to become a focus for international steel suppliers with the prospect of dumping returning.

If this occurs, governments are likely to re-impose custom duties on steel imports in an attempt to protect local manufacturing, although such moves will do little to bolster prices.

Effects of the downturn

The global downturn and the lack of available project finance have put the brakes on several regional expansion projects particularly in the downstream sector:

  • Upstream, both Bahrain-based holding company Foulath and Brazil’s Vale (formerly CVRD), which are planning major investments across the region; maintain that their projects will proceed, despite the difficult trading conditions. If implemented, the projects will take regional pelletising capacity up to 68 million t/y by 2013.

  • The slowdown is also expected to have a major impact on Iran’s much publicised plans to quadruple steel production over the next five years, which were already in trouble due to a lack of finance and bureaucracy prior to the onset of the credit crunch.

  • Major government-backed players in the regional steel industry appear well insulated from the effects of the global slowdown.

  • However, smaller, private-sector firms, especially in the downstream arena, look vulnerable to a prolonged downturn, raising the possibility that there may be some much-needed consolidation in the industry.

  • Qatar Steel and the Saudi Iron & Steel Company (Hadeed) both pulled out of the planned direct reduction pelletising project in Mauritania in 2008 citing disagreements with the project’s initiator as well as concerns about ultimate profitability.

  • With global iron ore prices expected to fall by 30-50 per cent in the negotiating round to be completed in April 2009, both regional companies are likely to delay their entrance into the upstream sector until the cost of entry declines further.

Promising outlook

The longer term outlook for the Middle East steel market is more promising, given an expected rebound in the oil price in 2010 fuelling economic growth and capital investment.

As a result, steel demand is set to rise over the next five years. By 2013, regional finished product demand is forecast to grow to 85.5 million tonnes with raw steel production projected at over 50 million tonnes.

A growing issue for the regional steel industry going forward will be the availability of competitively-priced gas feedstock. With competition for limited supplies intensifying from the regional oil and utilities sectors, new gas allocations are likely to cost much more than in the past, when steel producers could count on a gas price below $1 a million BTU.

This information is taken from the MEED Insight Middle East Steel 2009 report. To order a copy download the order form (PDF) or email MEED Insight for more information, quoting reference MES2.

About MEED Insight:

Thanks to its own projects tracker, MEED Projects, MEED Insight has access to unparalleled, up-to-date information on the region’s projects market. We can provide companies with:

  • Details of all major projects within a given market or sector, including their scope
  • Contacts for clients, contractors and suppliers
  • Information on key clients and their tendering processes
  • Information on how to register with clients and prequalify for projects
  • Forecasting of future projects

Data analysis
MEED Insight has access to a wealth of regional data ranging from broad macroeconomic statistics to sector-specific information. We can obtain and analyse data on a specific market or industry to help companies gain an insight on market size and potential

Off-the-shelf reports

MEED Insight also offers a series of off-the-shelf reports on a range of different sectors and industries. The information compiled for these reports comes from a variety of sources, including MEED magazine, MEED.com, MEED Events and MEED Projects, as well as primary and secondary research.

Our current off-the-shelf reports include:

  • GCC ICT Projects Outlook & Review
  • GCC Projects Forecast & Review 2010
  • Power & Water in the GCC 2010
  • Libya Power & Desalination
  • Wastewater in the GCC
  • Middle East Cement 2009
  • MENA Mining 2009
  • MENA Aluminium 2009
  • GCC District Cooling
  • GCC Economic Outlook

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