Demand for steel playing catch-up

11 December 2017
Rebar competition intensified in 2017 with Riyadh’s lifting of a long-standing export ban, but there is cause for hope for a rise in demand in 2018

The landscape of the Middle East steel industry was looking somewhat rosier by the fourth quarter of 2017 compared with the same period a year ago. In particular, there are high hopes for the steel demand likely to be generated by reconstruction as conflicts ease in the region – most notably in Iraq with the defeat of Isis.

In Egypt, there are also positive noises over the imminent start of production at the Zohr gas field, which will provide natural gas feedstock for manufacturing industries, as well as export revenue that can be reinvested into projects that increase the demand for steel.

In its October 2017 short-range outlook, the World Steel Association revised down its demand growth forecast for finished steel in the Middle East and North Africa (Mena) to zero. This compared to 2.5 per cent growth projected in its outlook in April. “The Mena region’s outlook has suffered from low oil prices, geopolitical strife and high inflation,” the body stated, asserting that the region would see a total demand of 72.6 million tonnes of steel across 2017. However, it projected that growth would return in 2018, as the region plays catch-up.

Rebar rollercoaster

The regional market for rebar could be dampened in 2018 by the decision in Saudi Arabia to lift a ban on the export of steel reinforcing bar (rebar) dating back to 2008 – imposed to stave off the risk of a shortage in the kingdom’s construction supply chain.

Saudi steelmakers had been pushing authorities to permit exports since late 2014, when they were hit by the slump in oil prices and an influx of steel imports after global prices crashed. This came as the country’s construction sector was adjusting to the expulsion of some 1 million foreign construction workers. Inventories of rebar, the kingdom’s main steel product, ballooned – yet the export ban persisted.

Since it has been lifted, Saudi mills are reported to have shipped rebar to Bahrain and Kuwait, with one even heard selling a cargo to South Africa. Billet, an intermediate product used to make rebar, is meanwhile rumoured to have been exported to the Philippines.

Saudi producers are also soon expected to receive Dubai Central Laboratory certification to enable them to sell rebar in the UAE. Although imports from outside the GCC have dwindled, intra-regional competition is likely to increase.

Saudi steel imports, 2017*
MayAnnual% changeJan-MayAnnual% change
Square billet11,244-92163,150-72
Wire rod39,945-68251,818-42
Rebar (straight)2,723-9455,705-64
*=Tonnes. Source: General Authority for Statistics

Diversification plans

On the demand side, Saudi Arabia’s National Transformation Plan, with its targets for broadening the kingdom’s manufacturing base, should see it expand its financing of projects that consume steel. In the UAE, activity on projects related to the Dubai Expo 2020 will accelerate, with steel demand being met mainly by domestic and regional suppliers – since imports of Turkish rebar have been minimal in 2017.

At a recent event held by the UK’s Kallanish Commodities, panellists concurred that the GCC must invest in new flat steel production capacity to cater for future demand from expansion in industries such as automotive and shipbuilding.

Saudi steelmaker Solb Steel said in March it had signed up UK-based consultancy McLellan to conduct a feasibility study into the construction of a plate mill.

Prospective flat steel producers would also benefit from oil sector investment, thanks to initiatives such as Saudi Aramco’s plan to double the percentage of locally manufactured energy-related goods and services to 70 per cent by 2021.

Finished steel demand*
Middle East53.153.956.5
*=Million tonnes; f=Forecast. Source: worldsteel

Gas shortage

One major issue is gas availability. GCC governments no longer provide the crucial input material as liberally as once was the case. Moreover, the steel industry must compete for gas supply with petrochemical plants that generally offer a higher return. A potential path forward for the steel industry is to use solar energy and the growing regional reserves of steel scrap – reducing dependence on gas and imported iron ore.

Egypt recovery

Thanks to the floating of the Egyptian pound and IMF funding, as well as increased investment in local gas reserves, Egypt’s economy and steel consumption growth are recovering. Following the commissioning in 2016 of Egyptian Steel’s Beni Suef steelworks, with the capacity to produce 600,000 tonnes a year (t/y) of rebar and 850,000 t/y of square billets, the firm plans to start up its Ain Sokhna plant with the same capacities in early 2018. Suez Canal Iron & Steel, a joint venture between Suez Canal Authority and Saudi Arabia’s Prince Alwaleed bin Saud, is expected to commission its 1.2 million-t/y steelworks in 2019.

Challenges remain, however. Domestic rebar sales and output both declined in the first half of 2017, while Ezz Steel – Egypt’s largest steelmaker – saw capacity utilisation and profitability hampered by an ongoing working capital shortage in the first half of 2017.

Chinese steel

In the immediate future, the GCC economies will remain heavily dependent on oil, the production of which remains restricted by the Opec deal. Moreover, there is the risk of a potential return to the global market of cheap Chinese steel if, as many forecast, Chinese steel demand growth zeroes in 2018. The GCC diplomatic dispute also threatens to impede investment, and delay the region’s diversification away from oil.

By Adam Smith – editor at Kallanish Commodities, a business media organisation that produces news, training and market intelligence for professionals in commodities

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