Steady growth outlook for regional steel industry despite global slowdown

International steel prices may be in retreat from their peaks of recent times, but the commodity's future is quite secure as far as the GCC markets are concerned.

‘GCC will continue to remain a major consumer of long products, which constitute 60 per cent of the estimated demand as these countries look to develop its infrastructure and the petrochemical industry to sustain economic growth', states a new report by Global Investment House.

‘We are likely to see a jump in inter-GCC trade with Oman and Bahrain supplying iron pellets to Saudi Arabia, Qatar and UAE while importing finished steel products from these countries'. Steel imports by the Gulf markets have grown at a CAGR of 18.8 per cent between 2003-07 to 15.5 million tonnes, helped on of course by the unprecedented run up in demand from the construction sector. But the Global report assumes imports will start to take a hit once higher regional steel capacities come on stream.

Gulf-based producers have a comparative advantage due to the lower energy costs of $0.8-$1.5 per MMBtu (million British thermal units) compared with the $4-$6 per MMBtu elsewhere. This, the report states, gives them the ‘leverage to withstand any downturn in the steel industry'.

Project cancellations and delays

‘However, a prolonged world economic slowdown and reduction in oil prices can lead to cancellations and postponements of projects which will have a detrimental affect on the industry as a whole'.

But the additional capacities would not have much of an impact on the prices as such, but will be led by what is happening to the commodity on the global stage. ‘The output will be absorbed by strong steel demand.

However, we believe that international steel prices are likely to come down on the back of falling crude oil and raw material prices and lower world economic growth'.

The requirements of the infrastructure and real estate development sectors continue to hold up demand for steel rebars, used to reinforce concrete.

‘An estimated 13 million tpa of rebar is consumed by the GCC', Global estimates. '40 per cent of the total steel demand is met locally while the rest is imported mainly from Turkey, North Africa and CIS. The demand for long products, mainly used in building and construction, form 60 per cent of the overall demand'.

Figure Facts

• The GCC's steel production is fairly fragmented, there are 18 companies engaged in the production of raw steel and finished steel products. While Saudi Arabia is the largest producer, the UAE easily tops in per capita consumption with 2,348 kilograms followed by Qatar's 985 kilograms.
• The Gulf's overall per capita consumption is placed at 645 kilograms, much higher than the global average of around 240 kilograms. The differential is expected to stay at these levels given the project consumption pattern is still on the rise.