Big-ticket infrastructure plans bode well for Gulf steel sector

Steel consumption across the GCC has been underpinned by significant investment in the construction sectors of the UAE, Saudi Arabia and Qatar
By Sona Nambiar

audi Arabia and UAE remain the leading players in the Arabian Gulf when it comes to the production of construction steel, experts say, and forecast that demand for steel as a building material within projects will pick up in the last quarter of 2012 starting with the UAE and eventually lead on to growing demand from Qatar and Saudi in the next few years. Although governments in the region have successfully regulated steel prices, a growing shortage of gas and power will, however, dampen the long-term prospects of supply matching demand, they warn. There are around 10 major players in the GCC region. Saudi Arabia has six to seven major players who produce around seven to eight million tons of steel. Qatar produces two million tons and Qatar Steel is the major player in the country. The UAEs production stands at three million tons. Emirates Steel is the leading player with two other smaller ones in the game. Oman produces less than 500,000 tons and Sharq Sohar is a (million tons) major player in the country with some smaller players while Bahrain has one 26 steel producer, Saikumar Moorkanat, 2014 26.1 chairman and chief executive at Production 24.3 2013 20.8 construction consultancy Sasi Demand 20.2 Associates, told Zawya. 2012

Long products market in GCC

17.9

There are many other smaller players in the GCC region, who are facing a slow death because of the consolidation in the steel sector. Unless you build up sufficient capacity, your unit is not going to be economical in todays steel scenario.
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From the construction industry perspective, the companies buying billets and turning them into rebar are also looked upon as manufacturers. The rest of the construction market in terms of suppliers of finished steel products is supplied by traders who buy from Turkey, CIS countries, India and China. Ukraine and other CIS countries are the major suppliers since they have economies of large-scale production. However, the freight costs are high from CIS and the delays result in costs spikes. At times, prices drop and rebar prices are lower than the billet prices, which is not an ideal situation, Moorkanat said.

Overall GCC steel production of long products in 2011 stood at 18.3 million tons. Projected production quantities for 2012, 2013 and 2014 are 20.2, 24.3 and 26 million tons, respectively. Demand for long products in the region is forecast at 17.9, 20.8 and 26.1 million tons for the same years. Over the past five years, world steel production grew at a CAGR of 2.1%, while the GCC increased output by 9% in 2010, according to a recent Commercialbank Qatar report. It added that there are 18 steel companies in the GCC engaged in production of raw steel and finished steel products. Steel consumption across the GCC region has increased underpinned by significant investment in the construction sector, Moorkanat said. Saudi Arabia is the largest market in not only GCC but the MENA region. Saudi Arabias Hadeed is the worlds 40th largest producer of steel with a production of around five million tons. The GCC countries will continue to remain a major consumer of steel products, which constitute 60 % of the estimated demand as these countries continue to invest in infrastructure and the petrochemicals sector to sustain economic growth. Zawya data shows 685 registered companies in the steel and affiliated industries and businesses including traders and suppliers. Of these, 237 are in the UAE, 220 in Saudi Arabia, 56 in Oman, 78 in Kuwait, 63 in Qatar and 31 in Bahrain. Rising infrastructure spending on the back of higher oil revenues resulted in an increase of 4.1 million tons in the Gulf regions construction steel production 31 56 capacity in 2012 with total capacity 237 63 reaching 20.7 million tons, Ahmed Al Ansari of Qatar Steel told 78 participants at the SteelOrbis Spring 2012 Conference in April. He added that the total construction 220 steel production capacity of the region is expected to reach 23.1 million tons by the end of 2015, UAE Saudi Arabia Kuwait Qatar Oman Bahrain including 17 million tons of rebar production capacity, 3.5 million tons of steel section production capacity and 2.6 million tons of wire rod capacity.

Number of registered companies in the Gulf steel sector

Al Ansari said annual rebar demand in the GCC in 2012 is expected to total 12.6 million tons with demand for wire rod reaching about 2.1 million tons. Rebar demand in the region is expected to reach 13.3 million tons next year, 14 million tons in 2014 and 14.7 million tons by the end of 2015. With new capacity additions and existing mill capacity expansions, rebar demand in the region is expected to be met mostly by domestic producers, minimizing the need for imports.

More than 70% of the Saudi market, for instance, is catered for by local players. The rest of the market relies on rebar steel imports from Turkey, China and Ukraine. The majority of demand is for long products rebar, wire rods, sections and billets, said a leading GCC steel expert who did not wish to be named. Saudi and Qatar have regulatory mechanisms in place and hence the steel prices are controlled in these two markets. Though there are firms that import at cheaper prices and sell below the administered prices, these two markets have guidelines and are not subject to wild price fluctuations. Oman uses UAE steel as the benchmark and moves in tandem with the pricing from Emirates Steel. The Bahrain steel prices are administered by Qatar Steel and Emirates Steel and it is not a very capricious market. There have been swings in the UAE market but with Emirates Steel playing an active role, the major swings have been dampened a bit. The expert believes that there will be a strong upward movement in the UAE over the next quarter. From being a stagnant market, I believe that UAE market will pick up over the next four months and we are witnessing a revival of certain projects in Abu Dhabi and Dubai. The steel market is also doing fairly well in other GCC countries. In January, Emirates Steel issued a statement that it had succeeded in rolling out the first beams declaring the start of the hot commissioning of the first heavy section mill in the region at a cost of around AED 2.4 billion. The steelmaker said it can now produce large-size sections, beams, columns and sheet piles.

A Higher Profile for Steel An Arab Iron and Steel Union report added in April that SABIC affiliate company Hadeed had declared that the new steel production unit whose production capacity amounts to one million tons of billets per year will start up by 2012 to provide the Saudi Arabian market with different steel products. This will raise the companys production capacity to 6.5 million tons per year, and production of long steel products will be 3.8 million tons per year. Historically, concrete is the material of choice in the region since it is cheaper. But we are seeing a sh ift in projects where buildings will now be used for other purposes. Thats where we will see steel play a bigger role since it is easier to change the structure when you use steel. We are also seeing some large projects coming back that have large-span roofs that need steel. Hence, the steel market will pick up in the next year, said Ivan Jelic, associate director at Arup in the UAE. The company is an international independent firm of designers, planners, engineers, consultants and technical specialists. Airports need long-span roofs where steel is the material of choice and hence steel is very represented within our projects. In Qatar, Saudi and UAE, we are seeing trends that the steel orders need to be placed earlier and earlier on the project so that the contractor can be sure of timely procurement. So I believe that the usage of steel will increase, especially in Qatar due to the World Cup which will have

new stadiums that will need steel roofs and facades. So the steel market will definitely pick up in the next few years, Jelic said. Moorkanat said the market has started picking up due to real estate reform. Projects are turning around in the real estate market wherein developers are evaluating and welcoming long-term investors. Hence the steel industry prospects are picking up. Again, many unfinished buildings in Dubai are being taken over and being completed or being resold. And construction goes hand in hand with the real estate sector, he said. Other factors that bode well for the steel industry in the GCC include the huge budget plans in Saudi Arabia and Oman, sustained oil prices and the Arab Spring, which has resulted in a renewed focus on employment opportunities in the region. The UAE is seen as a safe haven for investments due to its location and logistical strengths. Additionally, the GCC is going through an infrastructure development boom in airports, ports and industry. But it will take a few years for supply and demand to even out, Moorkanat said. One must note that steel capacity is not getting added due to utility issues. The production of primary steel needs natural gas, which is in short supply in Saudi Arabia and UAE. Oman has utilized its existing capacity and expects gas to be available by 2015. Qatar has gas but cannot expand due to committed contracts with its other investments outside the country. Kuwait has limited land availability and scarcity of utilities. The other method to make steel is taking iron ore through a blast furnace, which requires coking coal; this is not used in the GCC. The scrap route is a preferred option at the moment. Power shortage is another issue that will need to be addressed. Again, since steel is predominantly produced with government backing, there are entry barriers to new players in some markets, Moorkanat said.

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