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04. March 2012

Middle East construction of steel growth

Arabian Business reported that a perceived risk of economic slump post Qatar’s 2022 FIFA World Cup could see it import 20% to 25% of the necessary steel for construction projects from neighboring GCC nations such as Saudi Arabia, UAE and also India.

Analyst Frost & Sullivan has tipped Qatar and Saudi Arabia to consume some 50% of the GCC’s building materials over the next decade or so.

A recent in depth report by the research firm stated that both countries have ramped up construction activities due to the growth in economic cities in the Kingdom and the run up towards the world’s most prominent football tournament in Qatar. Earlier this year, Frost & Sullivan labeled the liquefied natural gas rich emirate a boom in the making.

Mr Kumar Ramesh Frost & Sullivan’s industry manager, environmental and building technologies practice for MENA and South Asia said that “Driven by the ambition of hedging from an oil and gas-based economy towards a hub for tourism and finance, the GCC region is expected to spend USD 452 billion on infrastructure projects. Based on the current and ongoing projects, the conservative market estimates for building construction materials is pegged at USD 145 billion. At an aggregate level, the growing infrastructure investment is expected to drive the demand and growth of the building construction material industries in the GCC region.”

Mr Ramesh said that “To illustrate, if the investment in infrastructure projects is growing at a rate of 10% a year the demand for building construction materials and growth of the related industries would always be on a positive trajectory at 1.5 to three times magnitude. The need to buy steel and other associated materials will be one of Qatar’s key priorities. A quick estimate of the installed capacity shows the country to have eight to ten million tons with Qatar Steel being the leading market player.”

He said that steel manufacturers can expand the capacity riding high on the infrastructure investment towards the FIFA World Cup 2022. One fear expressed by many, however, is will supply be able to keep up with demand? Supply can be kept up under two circumstances namely, if normal economic conditions prevail, and if the raw materials supply and prices are favorable to the building materials industry,” opined Ramesh. In a typical construction project, the building material cost component is estimated at 32% of the total cost of the project. The construction and building materials markets in the GCC region are highly dynamic.

Mr Ramesh said that “The recent fall in the prices of construction material in Qatar is one of the best examples of volatile prices. However, the market is slowly gaining momentum. The price movement varies from country to country depending on the supply and demand in respective countries.”

He said that the prime driver of this phenomenon is the realistic infrastructure investment plans of the GCC governments, availability of inexpensive energy and skilled labor with expatriates from India for operational roles and Europe for managerial roles, at a low cost to support the manufacturing of steel products.

The annual demand for steel products in the GCC region stands at over 40 million tonnes and is expected to grow at 5% to 6% over the next five years. With some 67 steel plants currently in the Middle East region with an investment valued at USD 2.8 billion the steel industry in the GCC region has attracted a staggering USD 6.5 billion worth of investment to aid growth.

Mr Ramesh said that increasing demand, strong competition increasing cost of raw materials and labor will lead to an increase in the price by 5% to 7% in the medium term of three to 4 year. Steel manufacturers in the GCC are exerting efforts to integrate and consolidate their position through mergers and acquisitions. The GCC is expected to be one of the biggest in the global steel market with by products such as pipes and tubes. Also the change will help the region to diversify its oil and gas based income.



Sourced from arabianbusiness.com

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