Steel industry set for robust growth on the back of boom in construction activities
With 1,600 kilograms, the UAE has the highest per capita steel consumption in the Middle East, compared with the Middle East average of just 67 kilograms, an industry expert said. "This means that the UAE alone consumes nearly 24 times more steel than the Middle East average primarily because of the booming real estate and huge investments in infrastructure developments taking place here," Abu Bucker Husain, chief operating officer, Al Ghurair Iron and Steel (AGIS), a part of the Majid Saif Al Ghurair Group, told The Business Weekly.
Steel sector is faring very well and oil price increase has created a lot of disposable wealth for investment in the region and Foreign Institutional Investors (FIIs) are also investing in the real estate market. Standard & Poor estimates $1 trillion worth of projects underway or planned in the region leading to consistently high demand projections for steel.
In Dubai today with the ongoing Metro project, the new world's largest international airport coming up at Jebel Ali, the mega projects and the themed parks all will need steel, and right now there are not too many companies making steel in the UAE. The demand for steel will continue to be robust, Husain says.
Although there are about 15 companies in the steel industry in the UAE who make steel, there are only four major players - Emirates Steel Industry, Euro Gulf, Qasco and AGIS.
"We are in the final stages of completing our civil work and our erection team is already here to fix the equipment and machineries, all imported mainly from India. By the end of this year we will have our first plant (the pickling line) ready and by January next year we will have the cold rolling line ready and by February or March our commercial production from the plant will begin," he said.
Although the project is worth $100 million (Dh367 million), with the constantly escalating costs now the investment in the project has gone up a little over the $100 million.
Similar to most other industries in UAE, steel industry also has high dependency on foreign skilled labor, says Husain. "With the increased cost of living in the UAE, there is the risk of migrant workers returning to their own countries due to the explosive growth and appreciating currency there. This can change if the government announces incentives to promote industries," he added.
Speaking about the outlook for the steel sector, Husain said that according to The International Iron and Steel Institute (IISI) during 2006 the use of steel increased due to global economic growth and rapid development in countries with high growth rates, such as India and China.
"It is estimated that demand for finished steel products in the Middle East grew from 34.7 million metric tonnes in 2005 to 37.6 million metric tonnes in 2006 and will escalate further to 40.7 million metric tonnes in 2007. This is 8.9 per cent growth in Middle East as compared to 5.9 per cent forecasted growth worldwide.
Between the construction boom, cheap and reliable gas and energy, geographical positioning of UAE and the promotion of industries by Abu Dhabi government steel industry has some very good years to come.
When asked about the total steel production in the UAE, Husain says that there are two kinds of steel products- one is the flat product and other is the long product. The UAE consumes about five million tonnes of long products, which include billets, wire bars, wire gauge and rebars. Out of the five million tonnes only one million tonne is domestically produced and the remaining four million tonnes is being imported.
The UAE consumes about 1.6 million tonnes of flat products (sheets), which is also used in construction, air-conditioners and automobile sector. Currently, there is no production of flat steel products within the UAE. "In fact AGIS will be the first cold-rolling and galvanizing plant in the UAE. In our first stage phase of production the capacity is only 350,000 tonnes, but in the second phase we will increase capacity from 350,000 to 500,000 tonnes," Husian says.
Altogether 34 million tonnes of steel production was reported in 2005 throughout the Middle East, which increased to 37.3 million tonnes in 2006, and in 2007 it is expected to be around 40.7 million tonnes.
When asked about the global trend regarding mergers and acquisition M&As) in the region, Husian said, "Right now the domestic companies here are producing small quantity compared to the world players and I do no think that M&As will happen right away here."
However, he adds that, "The UAE is attractive for global players for several reasons like the geographically location (in the middle of the globe), equidistant Europe, Africa, and Asian countries, cheap and reliable energy and gas resources and a relatively cheaper availability of labor compared to Europe and America.
By Vinod Kumar PK
© The Business Weekly 2007
