A group of Gulf financiers announced the formation of a steel company worth US$5 billion (Dh18.36bn) yesterday that will acquire or build facilities across the world in an effort to dominate the booming local steel market. The company, to be called HadeedMENA, will establish basic steel mills in countries with large iron ore and energy reserves, then transport steel billets to planned facilities in Bahrain, the UAE and other GCC countries to transform them into various products including steel reinforcement bar (rebar). The company said it would produce eight million tonnes of steel products a year, increasing to 12 million tonnes "in the future".
"We intend to differentiate ourselves by taking a 'top to bottom' approach to the value chain," said Esam Janahi, the chairman of Gulf Finance House, a large Bahraini Islamic bank that is backing the project. "It will focus both on upstream productions for steel billets as well as the downstream manufacturing for steel rebars and structures." The construction boom in Gulf countries has led to shortages of steel and pushed up prices to record levels. Gulf Finance House said it intended to plug the shortage of supply.
The company estimated that as recently as 2006, Gulf countries had a need for 35.4 million tonnes of steel products, but only produced 24 million tonnes. It said steel from HadeedMENA would satisfy 15 per cent of the region's needs. Most steel imports came from Turkey or India, said Karel Costenoble, the general manager of MEsteel.com, an online steel market based in Dubai. Hisham al Rayes, the head of venture capital at Gulf Finance House, said the establishment of a big local steel company would aid contractors and others struggling with high prices. "It will definitely stabilise the price of steel and ease the shortage of steel in the region," he said.
The HadeedMENA project is the largest in a number of steel projects announced in the Gulf. Proleads, a regional construction research company, estimated in May that $18bn was being invested in 47 steel projects in GCC countries. Saudi Arabia is investing $4bn to build several massive plants, while Qatar is building a $1.5bn facility. In Abu Dhabi, Emirates Steel, a subsidiary of Abu Dhabi Basic Industries Corporation, is investing between $5bn and $6bn to add several million tonnes of steel capacity to its sites in Musaffah.
HadeedMENA, however, will be distinguished by its scope and size. The vertical integration of stages of production is reminiscent of methods used by steel barons of the Industrial Revolution like Andrew Carnegie, who bought iron ore mines in Minnesota to feed his famous steel mills in Pennsylvania. The company will build so-called "upstream" steel facilities in countries that are rich in iron ore and easy access to cheap sources of energy. Mr Rayes said the company was looking at Australia, Brazil, India and Central Asian countries, as well as Yemen and Libya as possible locations for facilities for producing basic steel billets or pellets.
So-called "downstream" facilities, which would make rebar and other finished products, would be established in GCC countries. The UAE and Bahrain would each have at least one facility, Mr Rayes said. He said vertical integration was an expensive undertaking that took courage and a lot of capital, but it ultimately paid off in the form of lower costs. The cost of shipping represented 10 to 15 per cent of a steel maker's costs, and was a crucial point to consider, he added. "The key thing is to locate your plants next to places with iron ore, plus economic sources of energy."
Mr Rayes said the company was looking at powering its steel mills with both coal and natural gas, depending on availability. He said he expected that the company would announce iron ore deals by the end of the year, after it had finalised financing and established a corporate structure. @Email:firstname.lastname@example.org