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Tue 30 Dec 2008 02:20 PM

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Diversity the key as SABIC faces steel price woes

Saudi industrial firm says other products will help it through difficult time in steel sector.

Saudi Basic Industries Corp (SABIC) expects its diverse product portfolio to help it weather the impact of lower revenues from its steel business, the company's top executive has said.

SABIC, whose Hadeed steel affiliate is the kingdom's largest, has cut prices by 43 percent since September on sagging demand.

"Conditions for steel are difficult, global prices have reached too low a level to allow plants to break even and stocks are high, consumption is also declining," Mohamed al-Mady told Reuters late on Monday.

"But because we are a diversified firm that has many products, we are at the present time breaking even unlike other steel firms," he said, dismissing the possibility of redundancies.

State-controlled SABIC controls 100 percent of Hadeed. Mady could not say by how much steel demand has declined.

SABIC's metals business, made up essentially of Hadeed, accounted for 13.3 percent of SABIC's profit in the nine months to Sept. 30 and 10.3 percent of its turnover.

In addition to steel, the company produces fertilisers and petrochemicals and holds stakes in aluminium companies such as Bahrain-based Alba.

Saudi Arabia has steel production capacity of about 8.4 million tonnes, of which 5.5 million tonnes can be produced by Hadeed, according to the website of Arab Steel, an industry association.

Saudi steel makers' woes are amplified by imports of steel mainly from Turkey and Ukraine.

Al-Ittefaq Steel Products Co, one of the country's three largest steel makers, has notified 80 percent of its 2,145 workers that they will be temporarily laid off over a three-month period starting Thursday to cut costs, a company official said.

Hadeed plans to more than triple its production capacity to 17 million tonnes by 2020, its general manager Hisham al-Hamili said.

Having almost doubled in two years, steel prices started to decline recently after authorities banned scrap metal exports and as demand waned on spiralling costs which, along with other input costs, raised fears over the viability of some projects. (Reuters)

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