Steel sector to see rising demand

31 December 2013

Higher public spending is set to spur growth in demand, but challenges threaten the industry’s potential

Speaking at a recent steel conference in Dubai, Khalid al-Qadeeri, vice-chairman and managing director of Foulath & Bahrain Steel, told the assembled delegates that the region’s steel consumption would hit 30 million tonnes a year (t/y) by 2023.

Such a figure represents annual growth of 7 per cent and reflects growing demand stemming from the Middle East’s massive infrastructure investments.

However, there is still a feeling among steel industry executives in the region that there are several challenges that need to be overcome before the sector can fulfil its full potential and emulate other heavy industries such as petrochemicals and aluminium production.

As of late 2013, the Middle East consumed about 20 million t/y of steel, with 12 million t/y produced locally and the remainder being sourced from the international market.

Definite market

The recent awarding of contracts for massive infrastructure schemes such as the Riyadh and Doha metro systems, as well as future international events such as the Dubai Expo in 2020 and Qatar’s 2022 Fifa football World Cup means there is a definite market for locally produced steel.

Other positive notes in 2014 should include the promise of Iranian sanctions being lifted, as well as political stability being fully restored in Egypt. But this optimistic outlook is tempered by several challenging factors.

“Most of the region’s producers believe the short-term outlook will be focused on the construction sector”

The most pressing issue for many producers in the GCC is the dumping of cheap steel into the local market. The region’s steel executives have called for more stringent measures to be taken by local governments in order to stop countries such as China and Turkey selling their steel for lower prices in the GCC than they sell in their own markets.

Hilal al-Tuwairqi, chairman of Saudi Arabia’s Al-Tuwairqi Holdings, says cheap steel from Turkey and China is hindering industrial diversification in the region.

“The money is going to the traders and the traders are not creating jobs or making anything,” he said at the Metal Bulletin Middle East Iron and Steel Conference, held in Dubai in December 2013. “Dealing with the local producers means the money stays in the region.”

The evidence does seem to support Al-Tuwairqi’s sentiments. Turkish steel producers do not have to pay any export tax to sell steel in the GCC, while GCC producers are hit with a levy of 17 per cent if they export to Turkey.

Turkish producers state that the cheap utilities on offer in the GCC forces the government to attach the 17 per cent levy. The cheaper cost of utilities means steel is about $35 per tonne cheaper to produce in the GCC countries. However, Turkey has added $105 per tonne to the price of GCC-produced steel in comparison to locally produced steel.

Al-Qadeeri has also called for the GCC to bring in tighter regulations that would deter countries from dumping cheap steel into the region. The executive said the difference between dumping and competition had to be differentiated.

“[Local] producers will improve quality and lower costs if there is competition,” he said. “Dumping is very different.”

Saudi Arabia is the region’s largest economy, with well over $100bn-worth of active projects. The kingdom requires millions of tonnes of steel to be both produced locally and imported.

However, in May 2013, MEED reported that the local Al-Rajhi Steel’s planned $3bn steel complex had been cancelled and all of the contractors had been informed in writing of the decision.

The scheme, planned for King Abdullah Economic City (KAEC) near Jeddah, was set to include a direct-reduced iron (DRI) plant producing 1.8 million t/y of steel, two steel shops producing billets, blooms and slabs, a mill producing long products and a mill producing flat products, as well as a cold-rolling process plant.

Budget gap

“The [Al-Rajhi] project was definitely the cornerstone for most of the major steel plant manufacturers in 2013,” a senior steel industry executive said on the sidelines of the Metal Bulletin conference. “The cancellation of this scheme left a big hole in everyone’s budgets.”

The demise of Al-Rajhi Steel’s proposed plant was followed in June by Saudi Basic Industries Corporation (Sabic) stating its plans to build two world-scale steel facilities on either side of the Saudi Arabian coast. The plants will be built and operated by Sabic’s steel subsidiary, Hadeed.

One of the facilities will be constructed at Jubail in the Eastern Province and will have a capacity of 1.5 million t/y, while the other will be located at Rabigh on the Red Sea coast and will have a capacity of 1 million t/y. A combined budget of $4.2bn has been mooted. Both projects should create a total of 2,500 jobs. However, they are still at the study phase and neither is likely to be built before 2018.

Elsewhere across the GCC, there are no immediate plans to increase steel capacity. In Abu Dhabi, Emirates Steel Industries (ESI) is still planning a third-phase expansion, but most industry insiders believe this will not take place until late 2014.

Across the rest of the Middle East and North Africa (Mena) region, North Africa’s steel industry is beginning to sprout green shoots of recovery as it emerges from three of the most turbulent years in recent times.

Egypt growth

Egypt is by far the largest producer and consumer of steel in North Africa. According to the country’s largest producer, Ezz Steel, domestic demand is expected to grow by 2.5 million t/y over the next five years.

The economic slowdown, brought about by political instability, meant consumption slumped in Egypt by 6 per cent year-on-year in 2013. The drop in demand forced Cairo into introducing a 6.8 per cent import tax in late 2012, which expired in June 2013.

Egypt is second only to Iran in the region for producing crude steel. In 2012, the Belgium-headquartered World Steel Association said Egypt produced more than 6.6 million tonnes of crude steel.

Ezz Steel is the largest producer in North Africa, with a capacity of 5.5 million t/y, followed by Suez Steel with 2.7 million t/y. Egypt has more than 7 million t/y of DRI capacity, which means it enjoys flexibility in the grades of steel it produces.

Consumption in Egypt is expected to have been 6.8 million t/y in 2013, and is forecast to grow to 7.1 million t/y in 2014. There are signs of improvement already, with a 30 per cent quarter-on-quarter rise in steel consumption in the third quarter of 2013. Looking forward, consumption is expected to grow to 9.3 million t/y in the country by 2018.

However, in terms of active projects, Egypt shows no real signs of recovery. No steel schemes are likely to be initiated in the country before the end of the decade.

Algeria is the only North African country with an active steel project. Qatar Steel International is considering plans to invest $3.2bn on an integrated steel, mining and power complex at the Bellara Industrial Zone, located about 40 kilometres from the port of Jijel in the east of the country.

A final investment decision on the scheme has yet to be made and speculation is growing that the project could be shelved or even cancelled by Qatar Steel International. However, there has been no indication yet from Doha that this is the case.

Algeria has replied to the speculation by saying it will build the facility “with or without” its Qatari joint venture partner.

The Mena region’s steel sector has much to feel confident about, but it also has some catching-up to do when compared with the petrochemicals and aluminium industries.

Construction focus

Most of the region’s producers believe the short-to-mid-term outlook will be focused on the construction sector, with the majority of production aimed at reinforcing bars (rebar) and other steel products such as heating and ventilation ducts.

However, the chief executive officer of Emirates Steel Industries, Saeed Ghumran al-Romaithi, believes diversification of the usage of domestically produced steel is vital to the future of the industry. “Sectors such as automotive, shipbuilding and consumer goods will use more and more steel [in the future],” he says.

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