By Angela Giuffrida
As the GCC steers towards becoming a major production centre for steel, Angela Giuffrida reports on the issues that might hold it back.
Fluctuating prices, supply shortages and extended delivery times are just some of the challenges facing the steel industry in the Middle East.
While the regional construction explosion is keeping steel companies on their toes, rising global demand is placing immense pressure on stock.
Last year, worldwide demand for steel grew by around 7%, according to figures from the Organisation for Economic Cooperation and Development (OECD).
This was mainly offset by a burgeoning economy in China, which apart from being one of the world's largest consumers of steel, is also a prominent producer having amassed 339 million tonnes in 2006.
An upsurge in steel manufacturing was also seen in the European Union, the CIS countries (led by Russia), and in north and South America last year.
Meanwhile, the demand for steel in the Middle East continues to flourish - in the GCC alone, steel demand stood at 15 million tonnes in 2006, of which 14.3 million tonnes were imported.
This figure is expected to reach around 19.7 million tonnes in 2008, mainly because of a surge in industrial and infrastructure projects.
Although the OECD predicts slightly slower growth in demand and production for 2007, this hasn't stopped major consumers of steel looking into nurturing their own steel production centres to mitigate price fluctuations and overcome supply shortages.
The GCC has outlined plans to boost steel production capacity to 11 million tonnes a year over the next three years, requiring an investment of around US $5 billion, according to a report by the Gulf Organisation for Industrial Consulting (GOIC).
There are currently 45 steel factories in the GCC, with 22 of these being in Saudi Arabia, while a further 15 are planned.
Despite the GCC only contributing 1% towards the global production of steel, the region is expected to become a prominent manufacturing base over the coming years, says the GOIC.
The region currently relies heavily on imports due to minimal steel production - domestic demand is believed to outweigh supply by two to one, with firms needing three million tonnes of steel a year.
Apart from the ongoing and planned real estate projects across the region, further demand will also come as a result of the massive infrastructure projects in the pipeline, while global competition for demand and production is expected to be fuelled even more by industry consolidation, as highlighted by Arcelor/Mittal last year and the envisaged Tata/Corus deal.
But industry experts are divided on whether or not the GCC will be successful in the long term in becoming a major centre for the production of steel.
One of the challenges will be finding staff to operate the factories, and retaining them over a long period of time.
"Apart from the costs involved in bringing a labour force to the region, such as housing (them), transporting (them) and making sure you retain them, not many labourers want to come and work here anymore, especially when their homes markets such as India are booming," says Arvind Sharma, managing director, Kwik Steel Structures, FZCO.
One way of overcoming the labour issue is to emphasise steel manufacturing more in the local education process, says Raman Madhok, chief executive officer, Al Ghurair Iron and Steel.
"You have to remember that people here, and for a long period of time, were mainly traders," he said.
"Businesses were mainly family-run, and children used to be trained into them naturally. But the current local curriculum, whether in schools or in higher educational institutions, is not producing people who understand the industry or know how to make steel, so you have to import labour.
"At the moment you can import staff from places like India, Europe, the Phillipines and Bangladesh, but the steel industry is growing in these areas too, and if the same money can be earned at home, then workers will stay there.
"People already based in the region need to be trained to run the plants continuously over a period of time, and if you don't start now, what will you do in ten years' time?"
Although the region is more than capable of producing and selling its own steel, it has to be done in the correct fashion, says Madhok.
One way of achieving this is by the steel industries in GCC member states working more closely together.
"Although locally-produced steel is already quite strong, there needs to be more emphasis on sharing data, looking at best practice as well as having some kind of representation for the industry, like a steel institute.
"So far, the only real way people can integrate and share information is through conferences."