M I D D L E E A S T

S T E E L M A R K E T
R E V I E W
BY ADAM SMITH
EDITOR MIDDLE EAST
KALLANISHSTEEL

GREATER SELF-SUFFICIENCY
LEADS TO TRADE DEFENCE
The still-nascent Middle Eastern steel industry is
undergoing a period of unprecedented change. A
region which not so long ago was still heavily
dependent on imports to meet its rapidly-expanding
steel consumption is today launching its first trade
investigations as global oversupply undermines greater
self-sufficiency following vast capacity investment. The
Gulf Cooperation Council (GCC) has an active
safeguard investigation into colour-coated coil and an
anti-dumping probe into Chinese seamless pipe,
following years of talk about trade defence but no
action.

STEEL MARKET ADAPTS TO

LOWER OIL PRICES
The region is also adapting to lower oil prices, which
have put the brakes on the largely uninterrupted high
rates of steel demand growth seen in the decade
leading up to 2014. This has coincided with the
coming on line of substantial new production
capacity, invested into before the oil price crash.
Saudi Arabia, as the region’s most oil-dependent
economy and largest steel consumer, has been hardest
hit. Some of its producers have successfully petitioned
authorities to issue licences for rebar exports, which
have been banned since 2008. It remains to be seen
whether these exports take off. Many observers are
pinning their economic hopes on Saudi Arabia’s newly-
elected young Crown Prince Mohammad bin Salman,
who has pushed for diversification away from oil since
assuming chairmanship of the Council for Economic
and Development Affairs in 2015.

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UAE RE-ROLLERS BOUNCE

BACK
On the other hand, the rebound in Chinese steel
demand and prices since last year coupled with higher
scrap prices, have effectively priced Turkish rebar
exports out of the GCC without the need for trade
defence.

United Arab Emirates, whose many re-rollers either

reduced or stopped production post-2010 because
they could not compete with Turkish rebar imports,
are experiencing a resurgence. Buoyed by demand
from Dubai Expo 2020-related projects, two new rebar
re-rollers are setting up in UAE by 2019.

IRAN EMERGES AS SEMIS

EXPORT POWERHOUSE
This is being facilitated by another major new
regional trend: the emergence of Iran post-economic
sanctions as a key merchant billet supplier. Prior to
2011 Iran relied on semi-finished product imports
from the CIS and Turkey, but has in recent years
invested into new capacity faster than its own steel
consumption has grown. Thanks to its vast reserves of
iron ore and natural gas, and the global trend of
restricting finished product trade, many tip Iran to
become an increasingly important merchant semis
and direct reduced iron supplier. SOURCE: ISPA

CAN SCRAP OFFSET DRI WOES?

Increased DRI, or DR-grade iron ore pellet supply, onto
the global market would be a welcome development
for the GCC’s many DRI-EAF-route steelmakers. Once
touted as a region perfect for DRI making thanks to its
cheap natural gas prices, the outlook for the GCC’s DRI
industry has soured due to a global shortage of DR
pellets and the phasing out of government subsidies,
which has increased gas prices. An opportunity exists
for regional steelmakers to mitigate the DRI issue with
increased use of scrap sourced from within the region.
SOURCE: WORLDSTEEL
According to worldsteel data, Middle Eastern scrap
exports reached 1.5 million tonnes in 2016, around two
thirds of which was shipped by UAE. Increased intra-
regional scrap sales would, however, depend on scrap
price development and recalibration of trade
relationships, as well as adjustment to scrap by the
Middle East’s EAF mills.

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EGYPT GRADUALLY TACKLES

ECONOMIC PROBLEMS
Egypt, meanwhile, as the Middle East and North Africa
(MENA)’s most populous nation, has the potential of
becoming its largest economy and steel consumer.
However, various issues have hampered its growth
since the 2011 revolution. Natural gas shortages have
curtailed electricity generation and therefore
manufacturing output, and also deprived Egypt’s DRI
producers of essential fuel. Foreign exchange
shortages have simultaneously made it costly for
steelmakers to import scrap as a substitute to DRI.
Nevertheless, the longer-term outlook for the country’s
producers remains bright, with the prospect of
increased domestic gas supply and reduced prices,
improved forex availability and increased
infrastructure investment. Moreover, Egypt could
impose definitive anti-dumping duties on Turkish
rebar, following the levying of provisional duties in
June.

TURKEY CONSIDERS FUTURE TRADE RELATIONSHIP WITH MENA

All of this begs the question, what of Turkey’s future trade relationship with MENA? Will it focus more
on flat products, now that the traditionally-strong rebar and billet trade has diminished? Turkey's flat
product exports soared 78.6% on-year in January-May to 1.92mt, outpacing longs exports growth of
4.2%. Semis exports surged even faster, by 515% to 512,578t. Will Turkish mills forego trade with the
Middle East completely and re-focus on other regions, such as was the case with East Asia at the end of
last year and beginning of this? Whatever the case, Turkey will need to maintain exports, given its large
production capacity and falling domestic consumption. Turkey’s finished steel consumption fell -10.3%
on-year in January-May to 13.2mt, including -16.6% and -3.4% declines in longs and flats consumption
respectively. Maintaining exports, however, has been made yet more difficult by the prospect of steel
imports being blocked by the US – a top-two Turkish rebar export market – following the ongoing
Section 232 investigation.

Kallanish’s Middle East Steel Markets 2017 in Dubai on 4 and 5 October will aim to address all of these
issues and more, as a wide variety of market participants will debate what the future holds for the Middle
East and North Africa’s steel industry. Come and be part of the discussion.

www.kallanish.com/events/conferences | sales@kallanish.com

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