Foulath will take over a Saudi rival in its efforts to become the Middle East's first fully integrated steel producer.
Bahraini steel giant Foulath to take Saudi rival
Bahrain's biggest steel company will take over a Saudi rival by next month as it pushes on with an expansion effort to become the Middle East's first fully integrated producer, says the company's vice chairman.
Foulath's acquisition reflects its strategy to control every link in the steel supply chain, from iron ore mines to the output of finished products, all with a view towards lowering its costs of production in a continued down market, Khalid al Qadeeri, the vice chairman and managing director of Foulath, known formally as Gulf United Steel Holding, said on Monday.
The company would commit billions of dollars to its expansion effort, Mr al Qadeeri said, and would put up as much as 70 per cent equity in each investment. "In a good market everyone makes money, in a bad market, if you're not integrated, you won't survive," he said. "You can't survive as a standalone [plant]." Other regional producers, including the UAE's Emirates Steel Industries and Saudi Arabia's Hadeed, have pursued their own integration strategies but have yet to invest in raw material "pellet" plants or iron-ore supply.
Prices for imported steel rebar in the Gulf, a benchmark for the industry, have increased 16.5 per cent over the past 12 months to US$600 a tonne but remain well off the record of $1,525 reached in July 2008. Prices could hit $700 a tonne next year, said Robin Parker, the regional manager for Stemcor, the world's largest steel trading company. Foulath's acquisition target, a steel mill in Saudi Arabia, will be fed by barge with steel pellets produced at its plants in Bahrain, Mr al Qadeeri said.
He declined to name the company or its output capacity but said it was the only one in the kingdom geared towards producing light and medium steel sections. "Right now we are acquiring a company in the Gulf region … we will finalise the deal by November," he said at a steel conference hosted by MEED, a business magazine based in London. The company in question is almost certainly United Gulf Steel, which operates a mill in Jubail producing 450,000 tonnes per year.
It has been rumoured as an acquisition target and was the only one in the country whose plant matched Mr al Qadeeri's description, said a steel industry analyst who declined to be named. Officials at United Gulf Steel could not be reached for comment yesterday. Foulath's competitive advantage over the leading Chinese producers now amounts to $252 a tonne, said Anurag Bisaria, the director of the metal manufacturing projects division at Gulf Investment Corporation, an investment vehicle owned equally by the six GCC governments that in turn owns 50 per cent of Foulath.
Foulath's cost advantage, reflecting the lower cost of energy and transport in the region, was applicable to other GCC-based steel producers, he said. Foulath already controls 55 per cent of the MENA market for steel pellets, a raw material used in steel mills, after starting up an expansion plant in January, Mr al Qadeeri said on the conference sidelines. It plans to build additional pellet plants in Alexandria, Egypt, and in Salalah, Oman, in partnership with local investors, he said.
It is also building a $1.2 billion (Dh4.4bn) three-part steel plant in Bahrain, adjacent to its pellet plants, that will turn a portion of the pellets into finished, heavy-steel products such as I-beams for the construction industry. The plant is 49 per cent owned by Yamato Kogyo, a Japanese company, and is due to be completed by the beginning of 2013. Foulath's goal is that half of the pellet output from Bahrain will be steered towards in-house steel-making plants, including the acquisition in Saudi Arabia, Mr al Qadeeri said.
Foulath is also in talks with three companies in Brazil to take a stake in an iron-ore mine that would supply up to half of the company's requirements.