02 November 2006
The planned launch of the world's first steel futures next year by Dubai Gold and Commodities Exchange is signal enough to indicate the booming steel market in the region. With more than $1 trillion worth of construction projects planned or under way in the GCC alone, demand for steel products has grown to unprecedented levels. And with oil prices set to remain above $50 a barrel in the near future, the buoyancy is likely to stay for some time.
The economic boom has ensured that demand for steel products outstrips supply. For example, the GCC produces 7 million tons per year (t/y) of steel reinforcement bar (rebar), which falls short of local demand of more than 9 million t/y. In Dubai alone, for example, over Dhs5.58 billion worth of construction, of which steel is the key ingredient, hit the market in the first six months of this year.
While iconic super tower in the emirate the Dhs73-billion Burj Dubai consumed over 38,000 metric tons of steel rebar when it touched 70 levels in the first week of September, the completion of the seventh floor of the World Trade Center Residence (WTCR), a state of the art 40-storey luxury residence in downtown Dubai, used 630 metric tons of structural steel components. The continually increasing demand for steel has not only led to an upsurge in new steel plants but it is also forcing many industry giants to go for mergers and acquisitions in order to grab more market share in the region. Saudi Iron & Steel Company (Hadeed), the wholly-owned subsidiary of Saudi Basic Industries Corporation (SABIC), is planning to double its production capacity to more than 10 million t/y by 2015.
Today, the Gulf's largest steel producer has a capacity of more than 3.3 million tons a year (t/y) of long products and 2.2 million t/y of flat products. In Iran, which is taking all the efforts to strengthen the sector, steel production is due to hit 10.5 million tons by the year-end, according to Iranian Minister of Industries and Mines Ahmad Ali Harati-Nik.
Iran's current steel demand is between 16 million tons and 17 million tons. "Eight steel production projects are to be set up in the nation's less developed provinces. Each of the plants will be capable of producing 800,000 tons of the commodity per year," the Iranian minister was quoted recently. Besides the $402.4 million new steel complex being constructed in Ghayen in the northernmost city in S. Khorasan province, seven other steel production development plans have just begun in Kerman, Charmahal-o Bakhtiari, Khuzestan, East Azerbaijan, Yazd, Fars, and Khorasan Razavi provinces.
However, to meet the still growing steel demand in the country, Iran had recently allowed Indian steel giant Tata to produce four million tons of steel at Iran's Special Zone for Metal and Mineral Industries. The cost was projected at $1.5 - 2 billion, and raw materials, gas and ironstone, are being provided by the Iranian side. Iran is planning a new melting shop at Azarbaijan Steel Mill (AZCO) with a capacity of 730,000 metric tons a year (mt/y) in Miyane by 2010. Currently, AZCO has a production capacity of 550,000 mt/y and is consuming around 570,000 to 600,000 tons of billets per year.
Iran is also building a steel plant with a production capacity of up to 800,000 tons to one million tons in Algeria. In the UAE, Al-Ghurair Iron & Steel (AGIS), part of Dubai-based Majid Saif Al-Ghurair Group, is planning to add a second phase to its proposed steel plant at Industrial City Abu Dhabi 1 in Musaffah. The facility will be built on the company's 100,000-square-meter site close to the Emirates Iron & Steel complex.
Phase 2 is scheduled to start production in the first quarter of 2009, and will include a 500,000 ton a year (t/y) pickling line, a 500,000-t/y cold rolling mill, a 200,000-t/y continuous galvanizing line, and a 100,000-t/y color-coating line. Phase 1 is already under development and will include a 350,000-t/y semi-continuous pickling line, a 250,000-t/y cold rolling mill, a 200,000-t/y continuous galvanizing line and a 75,000-t/y cut-to-length line. Yet another UAE firm, Emirates Iron & Steel plant owned by Abu Dhabi government-owned General Holding Corporation (GHC) is planning a major expansion in order to increase its capacity. Total project costs are estimated at about $1,000 million.
Seeking to encash on the burgeoning regional demand, Egyptian National Steel (Attaka) has acquired 82 percent of steel billet maker, Suez Steel. In Morocco, Maghreb Steel, which increased its production of hot-rolled, galvanized and coated sheets during the first half of 2006 to 179,508 tons, has recently reached an agreement with Russia's No.3 steelmaker Magnitogorsk Steel & Iron (MMK) for joint production in the country. Steel scrap Like all other steel products, steel scrap is also in great demand. The Syrian Ministry of Economy and Trade issued an order early this month to continue banning export of steel scrap under whatever designation and customs tariff.
Article 2 of the order provides for restricting export of the colored metals (copper and aluminum) to the owners of the industrial installations which use this product as raw material in their industries in such a manner as the quantity of the scrap resulting from the manufacturing process intended to be exported by the installation will not exceed maximum 10 percent of the quantity of the raw material. Meanwhile, Saudi Arabia had lifted a 16-year ban on exports of scrap metal in compliance with the World Trade Organization regulations.
Following this, the Saudi scrap traders are eyeing North African countries like Libya, Algeria and Morocco to export first and second grades of steel scrap. More than 20 Saudi companies are currently involved in this business. Recent reports suggest that the yearly demand for the Saudi scrap may cross 1.2 million tons costing approximately $150 million. Reinforcing steel The reinforcing steel is yet another product, demand of which is increasing with construction boom in the region. In Oman alone, the market for reinforcing steel crossed 270,000 tons in 2005. Its demand is expected to touch 325,000 tons by the end of this year.
Oman's Sharq Sohar Steel Rolling Mills (SSSRM), which produced 157,317 tons of reinforcing steel during the first half of 2006, caters to the biggest portion of this demand. The rest of the demand is met by imports, most of which come from the neighboring countries. In yet another development, Omani firm Bechtel & Co. LLC, the EPCM contractor for the Sohar Aluminium Smelter project, has erected the first structural steel on the project. The structure, which came into being almost three weeks before the scheduled date of Oct.1, 2006, includes building columns for the potrooms. These columns will hold the roof rafters in the potroom as well as the crane rail girders on which the pot tending assemblies and other overhead cranes will run.
Around 600 columns will need to be erected in the 1.2-kilometer long potroom. This task is scheduled for completion around August 2007. Price rise The burgeoning demand for steel, like any other construction material, has led to an average 30 percent increase in prices across the region. This has created disquiet particularly among real estate developers in the region.
They face the prospects of high costs. They will face expensive penalty clauses if they fail to deliver projects on time. The only solution is to increase the production of steel, or for that matter all other construction materials. New steel plants with huge production capacity are the need of the hour. However, increasing steel output to meet rising demand requires not only huge investment by the private and public sectors but it also needs a steely will to face the emerging challenges.
The planned launch of the world's first steel futures next year by Dubai Gold and Commodities Exchange is signal enough to indicate the booming steel market in the region. With more than $1 trillion worth of construction projects planned or under way in the GCC alone, demand for steel products has grown to unprecedented levels. And with oil prices set to remain above $50 a barrel in the near future, the buoyancy is likely to stay for some time.
The economic boom has ensured that demand for steel products outstrips supply. For example, the GCC produces 7 million tons per year (t/y) of steel reinforcement bar (rebar), which falls short of local demand of more than 9 million t/y. In Dubai alone, for example, over Dhs5.58 billion worth of construction, of which steel is the key ingredient, hit the market in the first six months of this year.
While iconic super tower in the emirate the Dhs73-billion Burj Dubai consumed over 38,000 metric tons of steel rebar when it touched 70 levels in the first week of September, the completion of the seventh floor of the World Trade Center Residence (WTCR), a state of the art 40-storey luxury residence in downtown Dubai, used 630 metric tons of structural steel components. The continually increasing demand for steel has not only led to an upsurge in new steel plants but it is also forcing many industry giants to go for mergers and acquisitions in order to grab more market share in the region. Saudi Iron & Steel Company (Hadeed), the wholly-owned subsidiary of Saudi Basic Industries Corporation (SABIC), is planning to double its production capacity to more than 10 million t/y by 2015.
Today, the Gulf's largest steel producer has a capacity of more than 3.3 million tons a year (t/y) of long products and 2.2 million t/y of flat products. In Iran, which is taking all the efforts to strengthen the sector, steel production is due to hit 10.5 million tons by the year-end, according to Iranian Minister of Industries and Mines Ahmad Ali Harati-Nik.
Iran's current steel demand is between 16 million tons and 17 million tons. "Eight steel production projects are to be set up in the nation's less developed provinces. Each of the plants will be capable of producing 800,000 tons of the commodity per year," the Iranian minister was quoted recently. Besides the $402.4 million new steel complex being constructed in Ghayen in the northernmost city in S. Khorasan province, seven other steel production development plans have just begun in Kerman, Charmahal-o Bakhtiari, Khuzestan, East Azerbaijan, Yazd, Fars, and Khorasan Razavi provinces.
However, to meet the still growing steel demand in the country, Iran had recently allowed Indian steel giant Tata to produce four million tons of steel at Iran's Special Zone for Metal and Mineral Industries. The cost was projected at $1.5 - 2 billion, and raw materials, gas and ironstone, are being provided by the Iranian side. Iran is planning a new melting shop at Azarbaijan Steel Mill (AZCO) with a capacity of 730,000 metric tons a year (mt/y) in Miyane by 2010. Currently, AZCO has a production capacity of 550,000 mt/y and is consuming around 570,000 to 600,000 tons of billets per year.
Iran is also building a steel plant with a production capacity of up to 800,000 tons to one million tons in Algeria. In the UAE, Al-Ghurair Iron & Steel (AGIS), part of Dubai-based Majid Saif Al-Ghurair Group, is planning to add a second phase to its proposed steel plant at Industrial City Abu Dhabi 1 in Musaffah. The facility will be built on the company's 100,000-square-meter site close to the Emirates Iron & Steel complex.
Phase 2 is scheduled to start production in the first quarter of 2009, and will include a 500,000 ton a year (t/y) pickling line, a 500,000-t/y cold rolling mill, a 200,000-t/y continuous galvanizing line, and a 100,000-t/y color-coating line. Phase 1 is already under development and will include a 350,000-t/y semi-continuous pickling line, a 250,000-t/y cold rolling mill, a 200,000-t/y continuous galvanizing line and a 75,000-t/y cut-to-length line. Yet another UAE firm, Emirates Iron & Steel plant owned by Abu Dhabi government-owned General Holding Corporation (GHC) is planning a major expansion in order to increase its capacity. Total project costs are estimated at about $1,000 million.
Seeking to encash on the burgeoning regional demand, Egyptian National Steel (Attaka) has acquired 82 percent of steel billet maker, Suez Steel. In Morocco, Maghreb Steel, which increased its production of hot-rolled, galvanized and coated sheets during the first half of 2006 to 179,508 tons, has recently reached an agreement with Russia's No.3 steelmaker Magnitogorsk Steel & Iron (MMK) for joint production in the country. Steel scrap Like all other steel products, steel scrap is also in great demand. The Syrian Ministry of Economy and Trade issued an order early this month to continue banning export of steel scrap under whatever designation and customs tariff.
Article 2 of the order provides for restricting export of the colored metals (copper and aluminum) to the owners of the industrial installations which use this product as raw material in their industries in such a manner as the quantity of the scrap resulting from the manufacturing process intended to be exported by the installation will not exceed maximum 10 percent of the quantity of the raw material. Meanwhile, Saudi Arabia had lifted a 16-year ban on exports of scrap metal in compliance with the World Trade Organization regulations.
Following this, the Saudi scrap traders are eyeing North African countries like Libya, Algeria and Morocco to export first and second grades of steel scrap. More than 20 Saudi companies are currently involved in this business. Recent reports suggest that the yearly demand for the Saudi scrap may cross 1.2 million tons costing approximately $150 million. Reinforcing steel The reinforcing steel is yet another product, demand of which is increasing with construction boom in the region. In Oman alone, the market for reinforcing steel crossed 270,000 tons in 2005. Its demand is expected to touch 325,000 tons by the end of this year.
Oman's Sharq Sohar Steel Rolling Mills (SSSRM), which produced 157,317 tons of reinforcing steel during the first half of 2006, caters to the biggest portion of this demand. The rest of the demand is met by imports, most of which come from the neighboring countries. In yet another development, Omani firm Bechtel & Co. LLC, the EPCM contractor for the Sohar Aluminium Smelter project, has erected the first structural steel on the project. The structure, which came into being almost three weeks before the scheduled date of Oct.1, 2006, includes building columns for the potrooms. These columns will hold the roof rafters in the potroom as well as the crane rail girders on which the pot tending assemblies and other overhead cranes will run.
Around 600 columns will need to be erected in the 1.2-kilometer long potroom. This task is scheduled for completion around August 2007. Price rise The burgeoning demand for steel, like any other construction material, has led to an average 30 percent increase in prices across the region. This has created disquiet particularly among real estate developers in the region.
They face the prospects of high costs. They will face expensive penalty clauses if they fail to deliver projects on time. The only solution is to increase the production of steel, or for that matter all other construction materials. New steel plants with huge production capacity are the need of the hour. However, increasing steel output to meet rising demand requires not only huge investment by the private and public sectors but it also needs a steely will to face the emerging challenges.
By Abu Hamood Siddiqui
© The Star 2006
