Al-Rajhi Steel Industries, one of Saudi Arabia’s three largest steel producers, has said it plans to spend up to SR4 billion ($1.07 billion) to more than double its production capacity by as early as 2012.
The company, which accounts for about a fifth of steel and by-products sales in the kingdom, plans to start a 1-million-tonne reinforced steel plant in Jeddah by early 2011, CEO Mehdi bin Nasser Al-Qahtani told Reuters.
It also hopes to start production from a planned 1.8-million direct reduced iron plant which will most likely be located in the gas-rich Eastern Province towards the end of 2012 at the earliest, he added.
The two projects will cost between SR3.6 billion ($484.4 million) and SR4 billion and increase the company’s overall production of steel products to 4.6 million tonnes to cater for an expected rise in domestic demand in the coming years.
“We are working on financing ... Our group is linked to Al Rajhi Bank so there will be equity injection from owners and loan contribution from (state-run) Saudi Industrial Development Fund as well as from other banks,” he said.
The firm plans to cut prices of its products by between 6 and 10 per cent, starting this week, Al-Qahtani said.
The planned price cut follows a decline in the prices of scrap metal, the main input the company uses to make steel products, Al-Qahtani said in a telephone interview.
“The government’s decision to ban scrap metal exports has led to a 10 per cent drop in the price of this input ... We want to reflect this decrease on the final consumer,” he said.
Prices of steel have almost doubled over the past two years as demand has outpaced supply in Saudi Arabia, where the government and the private sector are spending hundreds of billions of riyals on infrastructure and housing projects.
The rise in steel prices, exacerbated by increases in other input costs, has raised fears on the viability of some projects. A Riyadh commerce and industry chamber official said in November that some 80 per cent of small and medium-sized construction projects have been put on hold because of the surge in building materials and labour costs.
Saudi steel producers have a combined annual capacity of 8.43 million tonnes, according to Arab Steel, an industry association. Other steel producers in the kingdom include Hadeed, which is controlled by Saudi Basic Industries Corp, and Al-Tuwairqi Group.
Rajhi Steel Industries is a unit of industrial conglomerate Mohammed Abdul-Aziz Al-Rajhi and Sons, the owners of which are related to the main owners of Al-Rajhi Bank, the Arab world’s largest lender by market value.