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Steel exports to Saudi Arabia from the Gulf Cooperation Council (GCC), and especially the UAE, have been heavily impacted since 1 July 2022 when the Kingdom imposed a 15 percent duty on steel imports.
“So far, GCC-manufactured goods were exempted from import duties to Saudi Arabia. But from 1 July, Saudi started imposing 15 percent duty on different products including steel. This greatly impacted steel players in the GCC, [and] especially, in the UAE, as Saudi is a big market for certain steel products,” said Steevan D’Souza, Vice President, Reliant International Group, which produces and exports steel billets, wire rods, slabs, as well as petrochemical and oil products.
In a June 2020 report, S&P Global Platts quoted sources as saying that Saudi Arabia increased import duties on various semi-finished and finished iron and steel products to between 10 percent and 20 percent of the product value, from earlier levels of 5-10 percent, effective from 20 June 2020 and applicable to non-GCC producers.
The Kingdom’s steel imports have included billets, rebars, and hot and cold rolled coils.
Dr Musa Souri, CEO, Union Iron & Steel Company, an Abu Dhabi-based manufacturer of rebars said the 15 percent duty has hugely impacted GCC players in terms of rebar exports.
“We were selling decent percentage of our production to the Saudi market based on actual market demand and we were trying not to over supply to the country. Maybe, the authorities decided that it is better to protect their own market,” he said.
Last month, the Saudi Minister of Industry and Mineral Resources Bandar AlKhorayef said the government is focussing on localisation of steel products and reduce imports by 50 percent.
Souri is optimistic that the situation could change. “…I think this is a transitory scenario where eventually the GCC could come to an agreement. Maybe, things will change,” he said.
D’Souza that the export situation is bleak at the moment, pointing out that earlier, the UAE used to export about 300,000 to 400,000 tonnes of wire rods and downstream products to Saudi Arabia.
“Today, UAE exports to the Kingdom for such products are almost negligible since Saudi buyers do not find the prices competitive compared to the local markets. As an investor, we used to export about 40,000 tonnes of wire rods to the regional markets, Europe and Africa. Saudi accounted for about 20 percent of our business, which is almost zero at the moment.”
Meanwhile, Saudi Arabia is producing about seven million tonnes of various steel products per annum.
“Players like Saudi Iron & Steel Co (Hadeed) are the backbone for steel and by-products. But look at the projects in the pipeline. For example, Saudi has given the go-ahead to build NEOM city. The first phase is itself set to cost 1.2 trillion Saudi riyals ($319 billion). It means there will be massive construction activity for a couple of years and demand for steel is going to increase. So, a robust supply will be needed to meet the demand for all the Saudi Vision 2030 projects in the Kingdom.”
Strong investor interest
In fact, many steel companies from overseas have announced major production-related investments in Saudi Arabia.
On 1 September, Zawya Projects reported that UK-based steel manufacturer J.O. Steel Holdings will invest $865 million to build an integrated billet manufacturing plant in Ras Al-Khair Industrial City.
India’s Essar Group announced in the same month that it plans to invest $4 billion in an integrated flat steelworks plant in Ras Al-Khair Industrial City, according to a Zawya Projects report, quoting The Economic Times newspaper.
D’Souza noted that such investments will take three to four years to come on stream.
“So, there would be a need for a short-term solution as Saudi still has to depend on other countries for products like wire rods. However, from a recent conference, my key takeaways were that while the 15 percent duty makes it difficult for the GCC players to sell in Saudi, the demand shortfall will be fulfilled by countries such as India and China because their prices are more competitive.”
Souri added that changes on the ground are inevitable. “Any country will go through the stages where they will first build infrastructure and cities where you will see more use of long products. Then they will move towards the stability phase where they will need different types of steel beyond rebar and long products. The demand will shift to sections and flat products, and this is where the market starts to develop and mature - see Europe for example,” he said.
On the other hand, in the context of upcoming COP 27 summit in Egypt, the Saudi steel industry could be in a sweet spot as decarbonisation pressure on hard-to-abate industries grow. Minister of Investment Khalid Al-Falih recently highlighted that CO2 emissions of the Kingdom’s iron and steel plants are 60 percent lower than global average due to the use of natural gas and electricity instead of coal in the production processes.
Global Trends
Overall, steel prices have fallen worldwide over the last three quarters this year. D’Souza said: “Wire rods sold at $900 fob [free on board] stand at $620 fob today. Additionally, energy costs in Europe have doubled even though demand is expected to rise drastically.”
He pointed out that most of the steel producers in Europe have stopped producing and some mills have shut down
|But the sources could change where Far East Asia gets more competitive for imports as energy cost and labour cost is more feasible and manufacturers are trying to capitalise their export volumes. Hence, overall, the market will pick up soon,” he said.
Souri agreed - “In the short-term, it is not clear but in the medium/long-term, the markets will see more stability,” he said.
(Reporting by Sona Nambiar; Editing by Anoop Menon)
