STEEL makers in the region need to cooperate more closely to bring stability to the regional markets and thus ensure their success, a senior official of Emirates Steel tells Gulf Construction.

While construction projects in the GCC region will remain the key driver behind the steel industry’s growth, followed by oil and gas, petrochemicals and other Infrastructure projects, the steel industry faces a number of challenges, says Mubarak Al Khaili, vice-president of commercial strategy at Emirates Steel.

Al Khaili points out that these challenges are making it difficult for regional steelmakers to bring stability to the market due to the high levels of competition in certain segments.

“As such, the main criterion for the region’s steelmakers to survive within the coming few years will be cost control,” he asserts. Steelmaking costs have been on the rise in recent years due to higher raw material prices.

“This is why regional producers might need to find ways to be more competitive, especially that their profit margins are shrinking. For that, they will need new technologies that will enable them to cut production costs and use flexible raw material feeds to counter the changes in raw materials prices,” he adds.

Khaili ... resolve.

Other challenges that require cooperation between steelmakers in the region include dependence on imported raw materials, overcapacity and the need to recruit and retain skilled manpower. On the other hand, anti-dumping measures have become essential for regional steel producers to survive against unfairly traded products entering domestic markets.

Nevertheless, Al Khaili believes that steel production in the Middle East region will increase significantly in the coming few years, despite the fact that at present the industry remains highly fragmented, with 51 of 67 producers having production capacity of below one million tonnes a year.

“Up till now, regional steel companies have been sailing through all odds, and I don’t see any reason why they won’t emerge stronger than ever in the future. But for that to happen, they will have to be lean, keep costs low, and offer credible value over imports to sustain and grow market share,” he explains.

“If all of us want to prosper, we need to cooperate more closely in bringing stability to the regional markets. This may require some of us to enhance our cooperation mainly through the Arab Iron and Steel Union for greater competitiveness. This will help us in becoming more efficient, flexible and market oriented,” he says.

Al Khaili believes that the construction sector holds good promise for the steel industry with steel consumption expected to double by 2050.

Some stability is returning to the GCC’s construction sector and there are signs of a recovery in 2011. It is believed that infrastructure projects will accelerate the region’s recovery in the next couple of years, he says.

“To begin with, GCC governments are using surplus funds to finance infrastructure projects. In fact, Qatar alone has budgeted to spend more than $50 billion on the 2022 Fifa World Cup. In addition, the Arabian peninsula’s population is expected to almost double from 60.48 million in 2007 to 124.5 million in 2050, which means that even at a static per capita consumption level, steel consumption will almost double,” says Al Khaili.

The need for housing and other requirements of a growing population in the GCC region is expected to absorb the increased capacity in steel manufacturing.

He continues: “Oil and gas revenues will continue to fund development and growth of the region. And with oil demand and prices expected to remain firm in the coming years, revenues will be sustained. This will require investments in the oil and gas-related industries. Establishing downstream facilities for oil refining and petrochemicals in the region will increase steel demand.”

In 2010 alone, contracts awarded in the GCC oil sector amounted to $58 billion.

In line with the anticipated increase in demand, Emirates Steel will extend its product range as it adds more production capacity. The company’s Phase Two expansion, which includes heavy sections, is planned to commence production in early 2012. The sections mill will produce beams, columns, channels, and angles with an annual capacity of one million tonnes per year.

Emirates Steel, the only integrated steelmaker in the UAE, commenced operations in 2001 with a bar mill and with a design capacity of 500,000 tonnes. At present, the company is implementing a comprehensive $2.45-billion phased expansion programme, which will increase its production capacity to more than 6 million tonnes per year (tpy).

Phase One was successfully completed in June 2009, raising output capacity to 2 million tpy, while Phase 2A (steel making) is scheduled to be completed in the first quarter of this year, and Phase 2B (sections) by 2012. Emirates Steel’s product range includes rebar, rebar in coil, and wire rod.

The company, a subsidiary of Abu Dhabi Basic Industries Corporation (ADBIC), is wholly-owned by General Holding Corporation, an Abu Dhabi government-owned company. It is strategically located in the Industrial City of Abu Dhabi (ICAD), just 35 km away from the heart of the city.

Emirates Steel will be present at Stand A71 at The Big 5 Saudi Arabia.