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Mon 13 Oct 2008 05:21 PM

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SABIC to triple steel production capacity

Gulf's largest steel-maker to increase capacity to 17mn tonnes by 2020 with new plants and acquisitions.

Saudi Basic Industries Corp's metals group said on Monday it will more than triple steel production capacity to 17 million tonnes by 2020 through acquisitions and the building of new plants.

SABIC's ambitious capital expansion plans come despite a forecast of weakening demand for the steel industry in the fourth-quarter, on the back of the financial market turmoil, although SABIC Metals expects the market to pick up again in 2009, buoyed by a raft of infrastructure projects in the kingdom.

"There will be some acquistions and mergers. We are in the market for it," General Manager Hisham Al-Hamili said at a steel conference in Dubai organised by London-based publisher MEED.

Prior to July 2008, when domestic demand was healthier "nobody was talking of selling... Now opportunities are in the kingdom and the region," Hamili said.

Al-Hamili said 2008 was one of the best years ever for the global steel industry, despite a slowdown in the fourth quarter.

"The fourth quarter is not going to be as good in terms of revenue, but the rest of the year was good," Al-Hamili said.

Al-Hamili later clarified he was referring to the steel industry as a whole, saying he was not permitted to comment specifically on SABIC Metals, the unit which he manages.

The steel group, which is the Gulf's largest steel maker, plans to build a new plant in the eastern industrial city of Jubail by 2012 capable of producing 1 million tonnes a year, Al-Hamili said.

It was unlikley to go ahead with the project for at least six months, Hamili said when construction costs are expected to fall more than 25 percent.

In July, Saudi Iron & Steel (Hadeed), the Gulf's largest steel maker and part of SABIC Metals, signed a deal with Saudi Arabian Fertilisers Co (Safco) to build a steel plant with capacity of 1.7 million metric tonnes a year.

He said SABIC would not have problems financing its expansion.

"SABIC is very strong... Hadeed had its best year ever and I don't think this [financing] will be an issue," Hamili said.

SABIC Metals, which includes Hadeed - SABIC's steel and iron subsidiary - and minority stakes in aluminium companies such as Bahrain-based Alba, accounted for about 8.5 percent of SABIC's turnover in 2007 and 10 percent of its net profit.

Saudi Arabia has a 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.

SABIC last week slashed steel prices by between 14 percent and 15.2 percent, the latest signal of slowing demand from Saudi steel producers and SABIC's second cut in less than a month.

It cut prices by 175 riyals per tonne in September after similar moves by its top two rivals Al-Ittefaq Steel Products Co. and Al-Rajhi Steel Industries.

Having almost doubled over the past two years, steel prices started to decline recently after authorities banned scrap metal exports and as spiralling input costs hit demand growth, raising doubts about the viability of some building projects.

Steel prices fell about 8 percent from their peaks in 2008, Shabir Rafiqi, chief financial officer of Al-Ittefaq Steel Products Co, said last month. He said he expected prices to decline by a further 8-15 percent by the end of this year.

Domestic steel prices now stand at about 3,600-3,900 riyals depending on delivery locations.

While SABIC may adjust December flat production due to a decline in local demand, caused by stockpiling, Al-Hamili said he expected steel prices to pick up again next year to between $850-$900 per tonne. (Reuters)

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