Sabic’s Saudi Iron and Steel Company (Hadeed) expects local steel consumption to increase gradually over the next 10 years thanks to stronger demand from the private sector and not only via government spending or the oil sector, metalbulletin.com said in a report quoting the state-owned Saudi Arabian steel producer at the recently held Fastmarkets’ Middle East Iron and Steel conference in Dubai, UAE.

Sabic Hadeed is one of the world’s biggest fully integrated steel producers, manufacturing a range of long and flat products.

Consumption of steel including rebar, wire rod and flat products, in Saudi Arabia will rise in 2020 to 8.5 million tonnes  (mt) from an estimated 8.4 mt in 2019, said Khaled Al-Qahtani, specialist in long products commercial marketing at Sabic Hadeed, citing the country’s Ministry of Finance.

“We expect a slow recovery of demand and in 10 years from now, in 2030, we expect to have similar demand to what we had in 2012 (when it was 11.7 mt),“ Ahmed Al-Hussain, Sabic Hadeed’s senior manager of long products commercial marketing, said.

“Previous market demand was related to government spending but, according to Vision 2030 and our outlook for the next 10 years, demand is supposed to come from private sector, not reliant on oil or government spending,” he added.

Saudi Vision 2030 is a government plan to reduce the country’s dependence on oil and diversify its economy. The largest investments are expected in the Neom project – a new city to be built in northwestern Saudi Arabia. The construction of Neom alone will require the consumption of around 4 mt of steel during the next 7 to 10 years, the report stated.

In 2019, around 65 per cent of Saudi Arabian revenue will be oil-dependent, Al-Qahtani said, citing the International Monetary Fund, the Ministry of Finance and Samba, a large financial services group in the state. Although this is little changed from last year, national dependence on oil revenues has fallen since 2014 when oil prices started to decline. In 2010-2014, Saudi revenue was around 90 per cent oil-dependent, it said.

“But if we do not work on local steel strategy, we will come up with the same issue of oversupply,” Al-Hussain said.

“In (Gulf Cooperation Council nations) we have around 25 steel suppliers... most supply reinforcing steel, with total capacity reaching 27 mt per year,” he added. “The capacity utilisation rate has dropped from 75 per cent five or six years ago to 50 per cent currently.”

Although GCC countries started a safeguard investigation focused on hot-rolled flat products, rebar, wire rod, sections and welded and seamless pipe, Al-Hussain warned that these measures “will not fix local overcapacity so the government should review the business structure of the steel industry in Saudi and support the downstream to move away from the construction segment.”

The share held by imports in steel consumption has fallen to around 23 per cent over the past two or three years to around 40 per cent, Al-Hussain said. Exports, meanwhile, will fall to around 2 per cent of all domestic production from 4 per cent last year because of the sharp increase in feedstock costs and a decline in the finished product market, he added.

In particular, Saudi Arabia, the largest steel-producing country in the GCC, has capacity of 14.5 mtpy of long steel products and just 2 mtpy of flat steel products, according to the Arab Iron & Steel Union (AISU). Sabic Hadeed is the only hot-rolled flat steel producer in the GCC.

“All expansion projects have been suspended for local producers because we are waiting for the comprehensive study of the steel strategy,” Al-Hussain said, although he acknowledged that Sabic is working on a joint venture with Mauritania’s National Company for Industry and Mining to establish mines there.

The profit pool for iron ore miners rose to 48 per cent in 2019 from 20 per cent a year earlier, while steelmakers’ profit pool slid to 21 per cent from 46 per cent, Metinvest sales director Dmitry Nikolayenko said during the event.

Given that Sabic Hadeed has a 5.3 mtpy DRI module and is likely to start mining in Mauritania, it might consider constructing a pelletising plant, a source at the company told Fastmarkets on the sidelines of the event.