Saudi Arabia has been rapidly emerging as one of the world’s major iron and steel consuming countries.

The kingdom’s first fully integrated steel producer Hadeed – a subsidiary of Saudi Basic Industries Company (Sabic) – went on production stream in 1983 at its Jubail facilities. In addition, there are 993 industrial units active in producing numerous fabricated metal products used in construction and by household consumers. These industrial units have invested SR27 billion ($7.2 billion) worth of funds and provided employment to nearly 94,000, representing nearly 26 per cent of the total workforce of the entire industrial sector. With total domestic production of around 4.5 million tonnes, Saudi Arabia ranked the 36th largest producer of iron and steel in the world in 2004.
Chart 1:

Global production outlook
The global production of iron and steel reached 1.057 billion tonnes in 2004, and is estimated to have further grown by 5 per cent to 1,110 billion tonnes in 2005. China figured as the world’s largest producer of steel, accounting for a total production of 273 million tonnes in 2004, followed by Japan and the US. China consumes almost one-fourth of the global steel production and is expected to have recorded strong production growth of nearly 16.7 per cent in 2005.
The worldwide availability of steel is expected to remain in short supply in the next two to three years up to 2008 until new capacities from China, India and Brazil catch up with global demand. India has plans to increase its current capacity from 32 million tonnes to 90 million tonnes by 2010. Brazil also has plans to increase its capacity from the 35 million tonnes to 60 million tonnes in the coming years, while current capacity in China is already reaching 315 million tonnes, which is slightly in excess of the local demand. Saudi Arabia and other GCC countries are also investing in building additional steel capacity of 2 to 3 million tonnes a year in the next three to four years. If the planned capacity expansion were implemented, the total available supply is likely to match the demand outlook in the region.
Chart 2:

International prices
International prices of iron and steel are expected to remain high unless there is a marked slowdown in the demand for rebar in China. Steel prices have risen to the levels that have already inflicted a slowdown in demand for various steel products such as scrap, which is used in making billets and then processed to rebar. A surge in price of steel reinforcement bars could trigger a slowdown in the ongoing construction boom in the different parts of the world, including GCC countries.
Meanwhile, construction contractors who have won projects on the basis of low steel prices may have to suffer margins while those preparing bids in a high price environment may benefit if increased production from China joins the world market (Chart 1).
Table 1:
Steel production
The various steel products produced and marketed in the kingdom fall into two major groups: first, the long products, which comprise of reinforcement bars, merchant bars, structural section rails, seamless tubes, wire rods, and wires.
These products find their use predominantly in the construction industry. The second steel group consists of flat products, which include slabs, plates, hot rolled coils, galvanised steel coils or sheets. These steel products are used in the processing industries such as manufacturers of consumer durables, construction and building industry, shipbuilding yards, automobile producers and several other industries, including steel fabrication shops.
At Jubail, Hadeed engages in the production of prime steel by direct reduction of iron ore (DRI) into sponge iron, which is then blended with 10 per cent scrap. With the establishment of several processing yards the company had raised its total production to 3.62 million tonnes by 2004. Besides its production of rebar, Hadeed is also a supplier of steel billets to the kingdom’s private rolling mills, which then produce rebar and meet around 30 per cent of the local market demand. In 2004, nearly 73 per cent of Hadeed’s total production focused on long products and the remaining 27 per cent was in flat products. In the same year, total sales by Hadeed declined at a faster 8.4 per cent in relation to a 2.9 per cent drop in production. However, in absolute terms, total sales exceeded production in 2004, suggesting the use of previous year’s inventory in their sales. Higher prices of rebar led to an 8.9 per cent drop in total sales of long products, as sales in the domestic market dropped by 8.7 per cent in the same year (Table 1).
Besides Hadeed, there are three major steel reinforcing bars producers, which include Al Ittefaq Al Tuwairqi, Capital Steel of Al Rajhi, and the Al Azizia in Jeddah, having a combined production capacity of 1.2 million tonnes annually.
This year, Hadeed is expected to pump in around 400,000 tonnes from its ongoing capacity expansion besides other output-expanding measures including halting production of light sections and delaying maintenance downtime. Other local producers are also expected to enhance production by around 100,000 tonnes this year.
In addition, the newly-established Yanbu Steel Company, with an annual design capacity of 500,000 tonnes is expected to go on production stream anytime between 2007 and 2008.
Hadeed is also building a new 700,000 tonnes-per-year wire rod and bar mill, which is expected to go on stream by early 2007. Taking into account all planned capacities, aggregate steel production capacity in the kingdom is expected to rise to around 5 million tonnes annually.
Table 2:

Impact of WTO
The Saudi market for steel and base metal products comprises of nearly 740 different items, produced locally and imported from across the world. In order to protect the domestic steel industry, the Saudi government has shielded 116 out of the 740 items from foreign competition by levying 20 per cent custom duty on imports from non-GCC countries. Having joined the WTO, Saudi Arabia will reduce the protective custom duty down to normal levels following the GATT (General Agreement on Trade and Tariffs) rules under the clause of ‘increased and growing access to the market.’ The protective custom duty will be lifted in three to five years time, as per the protocol of the agreements Saudi Arabia has already signed with other members of the global trade organisation.
Table 3:

Consumption
Consumption of steel and metal products in the kingdom is measured as the sum of local production and imports (total supply) less exports. Aggregate supply of iron and steel in the kingdom, having modestly risen by 0.26 per cent to 8.23 million tonnes in 2004, was expected to have increased by 5.2 per cent to 8.65 million tonnes last year. In 2004, Hadeed’s production accounted for around 44.1 per cent of the total supply, while the other three major producers are estimated to have accounted for 10.3 per cent of the total supply and imports constituted the remaining 45.6 per cent of the kingdom’s aggregate supply. Capacity enhancement in response to growing demand is the main driver of supply growth in the kingdom, thus total supply is forecast to expand by 7.5 per cent to reach 9.3 million tonnes this year (Table 2).
Consumption of iron and steel products in the kingdom rose nearly 1 per cent to 6.92 million tonnes in 2004, as shortage of key steel materials along with cement has capped growth in demand last year. Almost 60 per cent of total steel consumption in the kingdom is rebar and the remaining 40 per cent comprises numerous metal and metal base products used in construction and other industries. Production from Hadeed met 52.4 per cent of the total domestic demand, followed by 35.3 per cent net-imports (imports minus exports) and other local producers supplied the remaining 12.9 per cent (Chart 2). Based on preliminary indications, domestic consumption of steel is estimated to have grown by 6.3 per cent reaching 7.35 million tonnes last year, and is forecast to further grow by 8.2 per cent to 7.95 million tonnes in 2006.
Meanwhile, investment in mega projects including the establishment of a mineral railway track, would continue to underpin demand for iron and steel in the coming years. The demand for iron and steel, in particular rebar, is expected to remain strong on the back of government’s allocation of SR126 billion capital expenditures for 2006.
In quantity terms, per capita domestic consumption of steel and base metal products in Saudi Arabia is estimated to have reached 294 kg in 2004, and is projected to have risen by 4.1 per cent to 305 kg last year. The rise in per capita consumption of steel products clearly demonstrates the robust pace of economic growth in the kingdom. The per capita steel consumption will likely rise in the coming years as several of the announced mega projects will be launched.
Table 4:

Market value
In value terms, the market value of steel and metal products is estimated to have reached SR18 billion in 2004, and is expected to have risen by 20 per cent to SR21.6 billion last year. A global surge in demand for steel has led to a shortage in supply, which in turn has driven up prices more than 50 per cent in the last 24 months to December 2005. However, steel prices started softening in the last quarter of 2005. For 2006, the market value of steel and metal products is forecast to grow by 11 per cent to SR24 billion mostly on the back of increased consumption. The pattern of steel consumption suggests that the construction sector is the major consumer of steel and base metal products in Saudi Arabia, while industrial uses are still rather limited in view of the relatively low level of industrialisation.
Table 5:

Imports
Saudi Arabia imported 28 million tonnes of iron and steel products worth SR57 billion between 1994 and 2004. This gives a yearly average of 2.54 million tonnes, valued at SR5.2 billion with an average import price of SR2,034 per tonne. In the last 10 years to 2004, Saudi imports of iron and steel products grew 8.1 per cent per annum in quantitative terms and expanded even faster at 9.23 per cent in value terms, indicating the rise in prices due to growing demand.
In value terms, imports grew by 22.4 per cent to SR8.22 billion in 2004, and is expected to have further grown by 5 per cent to SR8.63 billion in 2005 (Table 3). Meanwhile, imports are expected to increase in 2006 on the back of rising demand to meet the requirements of several mega projects.

Exports
The overall iron and steel industry in the kingdom has reached a development stage whereby it is increasingly not only competing against foreign products in the domestic market place but has also successfully been deepening its penetration into foreign markets. The industry has also been quite successful in achieving import substitution of a number of steel products that generally fall under the category of protective trade regime. However, protective custom duty will gradually be reduced under the WTO, thus such products will face greater competition.
The aggregate quantity of kingdom’s exports of iron and steel products saw a massive growth of around 27 per cent in the last 10 years, expanding from a modest 119,000 tonnes in 1994 to 1.311 million tonnes in 2004. Due to competition, the average export price declined from SR2,210 per tonne in 1994 to SR1,889 per tonne in 2004, yet the global market saw a massive surge in metal prices during the same period (Table 4), suggesting Saudi Arabia generally exports low-priced fabricated steel products.

Exports by Hadeed
In quantitative terms, exports of iron and steel products originated from Hadeed constituted nearly 32.6 per cent of the kingdom’s aggregate exports in 2004. Production of iron and steel products by Hadeed declined by 2.9 per cent to 3.62 million tonnes in 2004, and is estimated to have increased by 10.4 per cent to 4 million tonnes in 2005. In the last decade (up to 2004), Hadeed has been exporting as much as 10 to 25 per cent of its output (Table 5). However, growth in demand for rebar by around 20 per cent in the kingdom over the last two years has forced the company to trim its exports of long products by 12.2 per cent in 2004. Export of iron and steel products from Hadeed moderately rose by 5.1 per cent to 428,000 tonnes in 2004. To compensate for the loss in rebar export markets, Hadeed has increased export of flat steel, which rose by 25.8 per cent in 2004. With increased production capacity, Hadeed’s exports are estimated to have risen by 5 per cent to 450,000 tonnes in 2005, and is forecast to rise by 20 per cent to 540,000 tonnes this year.

Conclusion
Aggregate supply of iron and steel production in the kingdom rose by 0.26 per cent to 8.23 million tonnes in 2004, but is estimated to have risen faster by 6.3 per cent to 8.65 million tonnes in 2005. The kingdom’s largest producer Hadeed company is estimated to have accounted for 44.5 per cent of the total supply, followed by other producers at 11.1 per cent and the imports amounted for the remaining 44.4 per cent. Of the total supply, domestic consumption reached 7.35 million tonnes and exports were at 1.3 million tonnes last year.
The aggregate market value of steel and metal products sold in the kingdom is estimated to have reached SR18 billion in 2004, and is expected to have risen nearly by 20 per cent to SR21.6 billion last year. The market value of steel and metal products is forecast to grow nearly by 11 per cent to SR24 billion in 2006, mostly on the back of increased demand.
Moreover, demand for iron and steel products, particularly rebar is expected to remain strong in the next five years to 2010. The government’s sizeable allocation in capital expenditure and the replenishment of development funds are expected to generate demand for iron and steel products in the kingdom.
Saudi Aramco’s investment of $50 billion on crude oil capacity enhancement along with Saudi Basic Industries Corporation’s (Sabic) allocation of $18.7 billion on building new factories over the coming five years would continue to create demand for steel products. Expansion of the Jeddah International Airport and the Landbridge railway project, linking the eastern and the western coasts of the kingdom, is also expected to generate a huge demand for long steel product in the coming five to 10 years.