MEIS 2019: Steel demand in Saudi Arabia will rebound gradually to 12mln tonnes by 2030 – Sabic Hadeed

Sabic Hadeed expects local steel consumption to increase gradually over the next 10 years thanks to stronger demand from the private sector and not only via government spending or the oil sector, the state-owned Saudi Arabian steel producer said at Fastmarkets’ Middle East Iron and Steel conference in Dubai last week.

Consumption of steel including rebar, wire rod and flat products, in Saudi Arabia will rise in 2020 to 8.5 million tonnes from an estimated 8.4 million tonnes in 2019, Khaled Al-Qahtani, specialist in long products commercial marketing at Sabic Hadeed, citing the country’s Ministry of Finance.

“We expect a slow recovery of demand and in 10 years from now, in 2030, we expect to have similar demand to what we had in 2012 [when it was 11.7 million tonnes],“ Ahmed Al-Hussain, Sabic Hadeed’s senior manager of long products commercial marketing, said.

“Previous market demand was related to government spending but, according to Vision 2030 and our outlook for the next 10 years, demand is supposed to come from private sector, not reliant on oil or government spending,” he added.

Saudi Vision 2030 is a government plan to reduce the country’s dependence on oil and diversify its economy. The largest investments are expected in the Neom project – a new city to be built in northwestern Saudi Arabia. The construction of Neom alone will require the consumption of around 4 million tonnes of steel during the next 7-10 years.

In 2019, around 65% of Saudi Arabian revenue will be oil-dependent, Al-Qahtani said, citing the International Monetary Fund, the Ministry of Finance and Samba, a large financial services group in the state.

Although this is little changed from last year, national dependence on oil revenues has fallen since 2014 when oil prices started to decline. In 2010-2014, Saudi revenue was around 90% oil-dependent.

“But if we do not work on local steel strategy, we will come up with the same issue of oversupply,” Al-Hussain said.

“In [Gulf Cooperation Council nations] we have around 25 steel suppliers… most supply reinforcing steel, with total capacity reaching 27 million tpy,” he added. “The capacity utilization rate has dropped from 75% five or six years ago to 50% currently.”

Although GCC countries started a safeguard investigation In October focused on hot-rolled flat products, rebar, wire rod, sections and welded and seamless pipe, Al-Hussain warned that these measures “will not fix local overcapacity so the government should review the business structure of the steel industry in Saudi and support the downstream to move away from the construction segment.”

The share held by imports in steel consumption has fallen to around 23% over the past two or three years to around 40%, Al-Hussain said. Exports, meanwhile, will fall to around 2% of all domestic production from 4% last year because of the sharp increase in feedstock costs and a decline in the finished product market, he added.

In particular, Saudi Arabia, the largest steel-producing country in the GCC, has capacity of 14.5 million tonnes per year of long steel products and just 2 million tpy of flat steel products, according to the Arab Iron & Steel Union (AISU). Sabic Hadeed is the only hot-rolled flat steel producer in the GCC.

“All expansion projects have been suspended for local producers because we are waiting for the comprehensive study of the steel strategy,” Al-Hussain said, although he acknowledged that Sabic is working on a joint venture with Mauritania’s National Company for Industry and Mining to establish mines there.

The profit pool for iron ore miners rose to 48% in 2019 from 20% a year earlier, while steelmakers’ profit pool slid to 21% from 46%, Metinvest sales director Dmitry Nikolayenko said during the event.

The average of Fastmarkets iron ore 62% Fe fines, cfr Qingdao is $93.70 per tonne in the year to date, up from $69.70 per tonne in 2018.

Fastmarkets’ weekly price assessment of steel HRC, import, cfr Saudi Arabia has averaged $510.09 per tonne so far this year, down from $602.06 per tonne in 2018.

Given that Sabic Hadeed has a 5.3-million tpy DRI module and is likely to start mining in Mauritania, it might consider constructing a pelletizing plant, a source at the company told Fastmarkets on the sidelines of the event.