Veto a step back for steel plans

31 January 2013

Al-Rajhi Steel has rejected the commercial and technical bids for its planned $3bn steel complex

The $3bn Al-Rajhi Steel project at King Abdullah Economic City (KAEC) is an ambitious scheme that has always been racing against time to get up and running.

The gas allocation for the project was given by Saudi Aramco on the proviso that the scheme was fast-tracked and built in one phase. Such a method is possible, but it is not the usual way of building a fully integrated steel complex.

Usually the development of a steel plant is phased so that the profits generated from the initial facility can be reinvested in the rest of the plant. This will involve the construction of a direct-reduced iron (DRI) plant and steel shop that produces semi-finished products such as billets or blooms. Subsequent phases will then be added to make long or flat products or steel plate.

Now the tenders have been evaluated and subsequently rejected for being too high. The bid bonds are also being returned, which means the whole process is likely to start again.

This is an unfortunate situation, but the fact remains that Saudi Arabia still needs more local steel to be supplied to ease the burden on imports. Recent data from the World Steel Association said that the kingdom’s steel output dropped 1.4 per cent in 2012 to 5.2 million tonnes, while consumption is expected to hit 12 million tonnes.

This means Al-Rajhi’s proposed complex will not only bring much needed skilled jobs to the KAEC, but will also provide a lot of the steel that will be used in Riyadh’s ambitious domestic investment plans.

Al-Rajhi Steel now has to make a decision regarding the future of the complex. Hopefully it will be the right one.

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