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Sat 25 Feb 2012 09:01 PM

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Middle East construction: Steel growth

The escalating boom in Qatar and Saudi Arabia is having a major impact on the future supply of steel for construction projects

Middle East construction: Steel growth

A perceived risk of economic slump post Qatar’s 2022 FIFA World Cup could see it import 20% to 25% of the necessary steel for construction projects from neighbouring GCC nations such as Saudi Arabia, UAE and also India. Analyst Frost & Sullivan has tipped Qatar and Saudi Arabia to consume some 50% of the GCC’s building materials over the next decade or so.

A recent in-depth report by the research firm states that both countries have “ramped up” construction activities due to the growth in economic cities in the Kingdom and the run-up towards the world’s most prominent football tournament in Qatar. Earlier this year, Frost & Sullivan labelled the liquefied-natural-gas rich emirate a ‘boom in the making’.

“Driven by the ambition of hedging from an oil and gas-based economy towards a hub for tourism and finance, the GCC region is expected to spend $452bn on infrastructure projects,” said Kumar Ramesh, Frost & Sullivan’s industry manager, environmental and building technologies practice for MENA and South Asia.

“Based on the current and ongoing projects, the conservative market estimates for building construction materials is pegged at $145 bn. At an aggregate level, the growing infrastructure investment is expected to drive the demand and growth of the building construction material industries in the GCC region.

“To illustrate, if the investment in infrastructure projects is growing at a rate of 10% a year, the demand for building construction materials and growth of the related industries would always be on a positive trajectory at a 1.5 to three times magnitude.”

The need to buy steel and other associated materials will be one of Qatar’s key priorities. “A quick estimate of the installed capacity shows the country to have eight to ten million tons, with Qatar Steel being the leading market player,” said Ramesh.

“Steel manufacturers can expand the capacity riding high on the infrastructure investment towards the FIFA World Cup 2022.” One fear expressed by many, however, is will supply be able to keep up with demand? “Supply can be kept up under two circumstances, namely, if normal economic conditions prevail, and if the raw materials supply and prices are favourable to the building materials industry,” opined Ramesh. “In a typical construction project, the building material cost component is estimated at 32% of the total cost of the project. The construction and building materials markets in the GCC region are highly dynamic.

“The recent fall in the prices of construction material in Qatar is one of the best examples of volatile prices. However, the market is slowly gaining momentum. The price movement varies from country to country, depending on the supply and demand in respective countries.” Building construction material predicted to be needed in the next decade or so includes structural steel, cement and its by-products, wood, and especially plywood, boards, timber, veneer and laminates, cladding, kitchen systems, sanitary wares and systems, glazing systems, MEP hardware, such as lighting, HVAC, fire and safety systems and door systems, flooring and ceiling systems and paints.

GCC and Middle East countries have been tipped to produce 35% to 40% of the world’s total steel production by 2015. At present, the steel market is dominated by neighbouring nations such as China, India and Turkey. According to analyst Frost & Sullivan, however, the scenario of the steel market in the GCC region is changing … and rapidly.

“The prime driver of this phenomenon is the realistic infrastructure investment plans of the GCC governments, availability of inexpensive energy and skilled labour, with expatriates from India for operational roles and Europe for managerial roles, at a low cost to support the manufacturing of steel products,” said Ramesh.

The annual demand for steel products in the GCC region stands at over 40m tons, and is expected to grow at 5% to 6% over the next five years. With some 67 steel plants currently in the Middle East region, with an investment valued at $2.8bn, the steel industry in the GCC region has attracted a staggering $6.5bn worth of investment to aid growth.

“Increasing demand, strong competition, increasing cost of raw materials and labour will lead to an increase in the price by 5% to 7% in the medium term of three to four years,” said Ramesh. “Steel manufacturers in the GCC are exerting efforts to integrate and consolidate their position through mergers and acquisitions. “The GCC is expected to be one of the biggest in the global steel market, with by-products such as pipes and tubes. Also, the change will help the region to diversify its oil- and gas-based income.”

Meanwhile, global world crude steel production reached 1,527 megatonnes (Mt) for 2011. This is an increase of 6.8% compared to 2010, and is a record for global crude steel production. All the major steel-producing countries, apart from Japan and Spain, showed growth in 2011. Growth was particularly robust in Turkey, South Korea and Italy.

Annual production for Asia was 988.2Mt of crude steel in 2011, an increase of 7.9% compared to 2010. The region’s share of world steel production increased slightly from 64.0% in 2010 to 64.7% in 2011. China’s crude steel production in 2011 reached 695.5Mt, an increase of 8.9% on 2010. China’s share of world crude steel production increased from 44.7% in 2010 to 45.5% in 2011. Japan produced 107.6Mt in 2011, a -1.8% decrease from 2010. In 2011, South Korea’s crude steel production was 68.5Mt, a 16.2% increase compared to 2010.The European Union recorded an increase of 2.8% compared to 2010, producing 177.4Mt of crude steel in 2011.

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