The Middle East region is now emerging as a strong contender for steel industry as not only government backed projects but also independents have been heavily investing in the steel capacities that are poised to change the recognition of the region from oil pocket to steel hub in coming years.
Steel companies in the Middle East region have been sailing against all odds only to emerge stronger than ever, Commodity Online.com reported. Saudi Arabia represents one of the fastest growing steel industries in the Middle East. Over the past few years, the rapid economic development has led to skyrocketing growth in the construction and infrastructure industry which has boosted steel demand in the country and caught the attention of global steel giants. It is evident from a recent research analysis that the consumption of iron and steel in the Arab countries has reached to around 14.8 million tons in 2009. The impact of economic slowdown on the real estate projects was minimal.
Out of the total real estate projects worth $543 billion, mere 4 percent have been cancelled or delayed in 2009. However, the steel industry in the region has been voicing concerns about the independents with no discernable track record in the sector for some time now, although producing steel billets and reinforcement steel for Dubai’s construction projects appeared to be a good idea back in 2007 or 2008. There are some green shoots of recovery and the region’s steel
industry is ramping up production. According to a research report Saudi Arabia Steel Industry Forecast to 2013, steel consumption in Saudi Arabia has rapidly surged over the past few years on the back of construction boom, growing investment in real estate and cheap and reliable gas and energy supply. Economic growth has also contributed substantially to raising domestic steel consumption by accelerating business activities.
At present, the steel industry in Saudi Arabia is highly import oriented. In 2008, the Kingdom imported around 6.3 million tons of steel which accounted for majority of domestic steel consumption.
However, the situation is expected to reverse in future with the escalation of domestic production. Analysts anticipate that the share of imported steel will see a downward trend in coming years as several major capacity expansion plans of manufacturers are in the pipeline.
The report has identified that increased real estate projects in different parts of the country are currently the key boosters and this trend coupled with government initiatives will play a greater role in promoting reforms and increasing competitiveness.
Middle East based business intelligence services provider, MEED has indicated that steel production for Saudi Arabia, the UAE and Qatar is expected to rise to 8.45 million tons per year in 2010 up from 6.8 million ton per year in 2009. But despite the promising production figures and rising steel prices, independent steel producers still need to formulate a plan that will secure their future. Concerns over gas supplies and financing may be at the forefront of worries but GCC [Gulf Cooperation Council] governments are also becoming more aware of environmental issues.
The solution for independents is to form partnerships with either the state-owned steel producers or the established global players from outside the Middle East. Whether that is by giving the state owned companies a share of equity or aiming at high value added steel products with companies such as Luxembourg- based ArcelorMittal is a decision for the individual companies.
There are advantages to both solutions. With a government-owned entity issues such as gas and finance will become easier to deal with while working with a steel giant from outside the region will bring decades of experience and expertise.
Source: The Saudi Gazette, Saudi Arabia, May 29, 2010. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org