Steel projects to boost supply

Mega steel projects undertaken by Gulf oil producers in face of rapid growth in domestic consumption will boost their output of the metal by 10 million tonnes within three years, according to an official Gulf group.

But the massive increase will cover only part of the region's soaring steel imports due to an ongoing construction boom, which involves projects worth more than $1.2 trillion (Dh4.4trn), the Doha-based Gulf Organisation for Industrial Consulting (GOIC) said in a study about Gulf steel projects.

It said that while the production of steel in the six Gulf Co-operation Council (GCC) countries surged by 21 per cent between 2001 and 2005, their consumption increased by 64 per cent.

"This has led to ever increasing imports of steel into this region… Imports of finished and semi-finished steel into the GCC were more than 13 million tonnes in 2005," said GOIC, which advises on manufacturing policies in the GCC states.

"The steel industry has taken note of the continued growth in steel imports and a number of projects have been planned and are under implementation. It is estimated that in the next two to three years, about 10 million tonnes of new steel capacity will be created in the GCC region," it said.

Citing figures by the International Iron and Steel Institute, GOIC said global steel demand recorded a compound average growth rate of eight per cent between 2001 and 2005, while the rate was as high as 17 per cent in the GCC, which controls nearly 45 per cent of the world's proven oil wealth.

Global demand is projected to grow by around 4.9 per cent until 2010 before it slips to 4.2 per cent between 2010 and 2015, said the study.

"As for the GCC, the level of economic growth will continue to be robust based on sustained high surpluses generated by oil revenues. This economic growth will in turn continue to fuel the construction boom as money is pumped into real estate, infrastructure and tourism projects," GOIC said.

"The growth in construction activities may slow down as compared to the heady rates of the last couple of years, but this sector will remain a key driver in the consumption of steel products. The increase in per capita income as well as the efforts to diversify into non-oil manufacturing sector will result in setting up of manufacturing chains to produce items of mass consumption by local industries. This in turn will lead to diversification in the requirement of steel products. As a result, growth in consumption of steel will continue to be high and is expected to be much above world averages."

The report noted that steel and other metal projects, including aluminium, in the GCC are the most feasible in the world as they involve heavy usage of energy, which is abundant and cheap in the region. As a result, GCC states have pumped billions of dollars into such projects as part of their long-term economic diversificiation programmes. The projects are expected to gain momentum in the coming years because of the construction boom and expectations oil prices will remain high.

"The efforts of the GCC nations to diversify their economies, and the availability of considerable monetary surpluses have led to a boom in investment in diverse sectors. Major investments are taking place in petrochemicals. The natural advantage of comparatively lower energy costs is being leveraged in setting up metallurgical units for the production of aluminum and steel, which have high energy usage," it said.

It noted that massive investments are also taking place in infrastructure projects such as airfields, ports, power plants and desalination plants. In addition to major real estate developments which are creating entirely new cities, several mega projects are under way to provide resorts and residential accommodation for international tourists and home owners.

"It is estimated that there are presently over $1.2trn of projects under execution and this figure is only expected to rise as oil prices continue to be buoyant. Most forecasts predict oil prices to continue to remain above the $60, thus continuing to result in massive surpluses in the GCC economies."

The numbers

$1.2trn: Worth of projects are under way in the GCC, which is putting enormous amount of pressure on the demand for steel and other commodities in the Gulf

21%: Production of steel witnessed 21 per cent increase, while consumption surged by 64 per cent between 2001 and 2005, according to a Gulf group report

8%: Global steel demand recorded a compound average growth rate of eight per cent between 2001 and 2005, while the rate was as high as 17 per cent in the GCC

Follow Emirates 24|7 on Google News.