Middle East demand matrix seen changing; new steel projects to plug need gap

• Longs comprise overwhelming 54 mnt of Middle East steel capacity
  
  
• Chinese steel had 80% share in region's steel imports basket
  
  
• Softer interest rate regime likely to hike steel prices
  
  

Morning Brief: The Middle East's (ME's) steel demand pattern is expected to undergo a shift and new projects coming up are gearing up to address this change. So far, the region has been primarily focused on long products. The GCC has a production capacity of 26 million tonnes (mnt) in longs and hardly 2 mnt in flats, indicating a highly skewed ratio.

If the entire Middle East region is taken into account, then within its 65 mnt of total capacity, flats comprise a mere 11 mnt. But this was mainly because so far ME had been seeing frenetic construction activity, with huge appetite for long products like rebars and wire rods.

The demand supply gap is mainly in flats, of 4-5 mnt per annum, which is being plugged through imports since the regions is self-sufficient in longs. But supply is obviously not keeping up with burgeoning flat steel demand, which is mainly for hot rolled coils, galvanized and painted coils.

Slew of new projects: Thus, the slew of new steel projects announced of late will majorly address flat steel demand. For instance, Emirates Steel Arkan announced a fully automated, first-of-its-kind hot strip mill with an initial plan for a 2 mntpa unit along with a 2.8 mnt of melt shop and 2.5 mnt DRI plant. That apart, Jindal-Shadeed announced a 5-mnt green steel plant in Oman, which will go onstream in 2026. Another 4-mnt Essar Steel project was unveiled in Saudi Arabia. In addition, a 1.5-mnt plates plant was announced in Saudi through a Baosteel-Aramaco joint venture.

"So a lot of flat steel production has been announced to take care of this need gap," informed B Sadashiv Shetty, General Manager, Commercial, at Abu Dhabi-based Al Ghurair Iron & Steel (AGIS), while recently speaking at Engage 5.0, SteelMint's webinar series.

China's role in ME's steel imports

China's ascendancy in Middle East's steel imports cannot be ignored. "The natural choice for imports was China. Not that it was the preferred option but because of the absence of India and Ukraine, from where the region sourced considerable amounts of flat products," Mr Shetty explained, adding: "When Indian steel mills decided not to export because of healthy domestic demand, the natural choice then was China."

This scenario even encouraged many Chinese mills to not only set up offices in the UAE to facilitate handling of local demand but also roll out superior branded products.

"A lot of the Indian market lost has gone to China and it has become the largest single supplier of flat steel to the region, Mr Shetty said. In 2023, in the total steel imports of around 4 mnt, China's share was 80%.

The Middle East is a net importer and will continue to remain so till projects get completed. The current total value of GCC projects announced stands at $3 trillion.

Much of China's steel exports amid production cuts will depend on its domestic demand trend.

Geo-political impact

Material shortage was a direct fallout of the Russia-Ukraine war soon followed by subsequent US interest rate hikes which put pressure on prices and, in turn, increased the cost of inventories held by downstream industries, observed Mr Shetty.

The rate hike led to some unfavourable exchange rates and forex outflow for importing countries, he said, adding this impacted the entire trade flows in the ME region. For instance, northern Africa used to be a huge market for steel imports but because of the US rate hikes, some of those economies were unable to import steel because of their precarious forex situation.

Outlook

The prospects of easing US interest rates will prop up steel prices, Mr Shetty predicted. "We see higher costs of raw materials driving steel prices up. Decarbonistion and green steel are expected to add to the cost of production. But higher prices will also keep check on demand. So we are cautiously optimistic of where prices will be in Q1," he added.

In terms of demand, he sees most of it coming from construction projects. A 2% m-o-m growth in demand is expected from projects alone over the next eight months or so.

2nd India Steel and Metal Conference: Keeping above dynamics in mind, SteelMint, along with the Steel Users Federation of India, will be organizing the 2nd India Steel and Metal Conference: Supply Chain & Sourcing Strategies, over 10-11 January, 2024 in Mumbai. Several key sessions will explore the current challenges and enablers. Experts will also try to read future trends.

Particularly, a session on "Evolving trade dynamics in a fast-changing global steel market", will discuss tightening of quality parameters for imports; give an overview on the carbon pricing mechanism and its impact; explore energy prices and their impact on steel; as well as dwell on Chinese property sector woes.

This is the only conference focusing on steel end-user industries and their issues. It will be followed by the glittering SUFI Steel Awards, 2023. Register fast.