Region’s steel makers slash costs as prices of raw materials surge

Steel makers face further volatility next year and the rise of protectionist policies is not a healthy indicator for the industry.

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Steel makers across the region are slashing costs as they respond to a global slump in prices, currency volatility and the threat of protectionism.

Emirates Steel has reduced costs by more than 30 per cent over three years as the Abu Dhabi mill seeks to become more “agile”, said its chief executive, Saeed Al Remeithi, on the sidelines of the Middle East Iron and Steel Conference in Dubai on Tuesday.

Other regional steel producers, including Unicoil and Sabic unit Hadeed, have also been forced to cut back in a year when the cost of raw materials like coking coal and iron ore more than doubled.

“At present, market reports indicate that the financial performance of steel-producing companies in the region has taken a strong setback,” Mr Al Remeithi said.

He said steel makers faced further volatility next year and acknowledged that the rise of protectionist policies was not a healthy indicator for the industry.

Rebuilding America’s steel industry was a key plank in the campaigning of president-elect Donald Trump.

Such election pledges helped build a wall of support among voters across the so called “Rust Belt” states, once home to thriving steel mills and other industrial manufacturing companies.

But they are being eyed cautiously by steel producers outside the US that have been buffeted by surging raw material prices, waning construction industry demand and currency pressures.

More than half of the steel that is consumed regionally is imported, which means that producers in countries like Turkey are benefiting from an increasing competitive advantage compared to peers in the UAE and Saudi Arabia, which have currencies pegged to the strong US dollar.

Turkish producers of the steel that is used to strengthen concrete, known as rebar, represent the main competition to producers such as Emirates Steel and Saudi Arabia’s Hadeed in the regional construction industry.

The Turkish lira is the world’s worst performing currency so far this year after weakening by more than 15 per cent. The decline makes it difficult for local steel makers to effectively compete.

Two years of weak oil prices, which are only now showing signs of recovery, have also had a devastating effect on the regional construction industry, especially in Saudi Arabia.

Unicoil, a Saudi producer of steel and aluminium coils, has cut operating costs by a quarter this year, said Rayed Abdullah Al Ajaji, its chief executive. “We have seen a lot of delayed payments from regional customers,” he said. “Cash lent to new projects has become more conservative.”

While producers expect to see more price volatility next year, recent pledges by global oil producers to curb output is providing some comfort for regional producers who hope that an increase in the price of crude will boost demand in the construction sector.

Hadeed has trimmed fixed manufacturing costs by 10 per cent, said Abdulaziz Sulaiman Al Humaid, the executive vice president metals at Sabic.

“The worst is over,” he said.

scronin@thenational.ae

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