Alam Steel and Macsteel set up 50-50 JV

Alam Steel and Macsteel have set up a 50-50 joint venture to build the first service centre in the Middle East for processing high-grade steel plates and sections.

The Dh100 million state-of-the-art factory will be set up on a 300,000 square foot site in the Jebel Ali Free Zone and is intended to help meet the rising demand for plates and sections in the construction, petrochemical, mining and earthmoving, manufacturing and fabrication industries. The facility will be operational within a year.

"We are very proud to partner with Macsteel who are global leaders in the business," said Vikram Bhatia, director of Alam Steel and a board member of Macsteel Gulf. "The service centre will complement our existing steel businesses and make us the most complete steel company in the region.

"We will be the only company to offer value-added processing for all the steel products we sell. This is a brand new concept in this part of the world. We have been in discussions with Macsteel for two years. It is a natural fit."

Michael Pimstein, CEO of Macsteel Service Centre and a board member of Macsteel Gulf, said: "We are very excited to partner with Alam Steel, who are pioneers of the steel industry in this region. Entering the GCC market is in line with our strategy of diversifying our geographic base."

Macsteel's global trading counterpart, Macsteel International, has been based at the free zone since 2004 while the latter's shipping company, MUR, moved there in 2006.

The new factory will be the first in the country to offer value-added and technical products and solutions. A complete range of flat steels will be processed by the service centre, including commercial, structural, pressure vessel, stainless, wear-resistant and many other grades. Cut to length, saw and drilling services will be available for long products.

While the joint venture aims to tap into the burgeoning demand in the GCC region – with the UAE and Saudi Arabia at the forefront – future plans include expanding into other areas such as North Africa and Southeast Asia.

"Currently the GCC consumes 20 million tonnes of steel and the UAE accounts for 35 to 40 per cent of the total figure," said Bhatia. "Within the flat products market the UAE needs around two to three million tonnes a year.

"Double that with the demand in Saudi Arabia and we anticipate a demand of around six to eight million tonnes within the GCC."

The current market perception that steel prices have doubled in the GCC is a misconception, according to the director of Alam Steel.

"It is a global phenomenon. The current run in commodities has defied expectation and what we are witnessing is a prolonged bull run," said Bhatia.

Asked how rising crude prices affected the steel industry, he said: "The basic fixed variable costs to produce steel are on the rise. But then so is demand, which arises out of the windfall from the high oil prices that is being reinvested by governments into infrastructure and development."

Alam Steel was founded in Dubai in 1979 and is based at Jebel Ali Free Zone. The company has more than two million square foot of distribution space and stocks over 150,000 tonnes of steel products in the GCC.

The firm's manufacturing subsidiary, Alam Steel Industries, processes rebars for the construction sector and has an annual capacity of 500,000 tonnes.

The African component of the Macsteel Holdings Group includes significant steel service centre operations in the United States and developments in Europe.

The group has operations in more than 40 countries. The Macsteel Service Centres Group is Africa's most extensive merchandiser and distributor of steel and value added steel products, with sales in excess of 1.5 million tonnes per annum.

Rising global demand

International demand for steel has soared to 1.3 billion tonnes in 2008 compared with 800 million tonnes last year.

Bhatia said: "Today China produces almost 500 million tonnes, contributing to additional pressure on raw materials. Two years ago, the country used to produce between 130 to 150 million tonnes of steel."

According to industry experts the main steel exporting countries such as the former Soviet states have shifted the main focus of their production towards domestic consumption.

GCC countries are therefore mainly dependent on Turkey as the main supplier.

Pimstein said hedging in steel had contributed to the constant fluctuation and volatility of prices.

"What needs to be done is increasing the production capacity and greater integration of various producers. Futures trade will only result in further increasing the volatility," said CEO of Macsteel Service Centre.

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