Saudi Arabia Steel Industry Preview
The Kingdom of Saudi Arabia has become one of the favorite destinations for the steel majors due to thriving construction sector, and soaring steel demand; Over the past few years, the rapid economic development has led to skyrocketing growth in the construction and infrastructure industry, booming investment in real estate and cheap & reliable gas/energy supply which has boosted steel demand in the country and caught the attention of global steel giants.
With the industry’s immense growth potential, according to “Saudi Arabia Steel Industry Forecast to 2013” Economic growth has also contributed substantially to raise domestic steel consumption by accelerating business activities. In fact, the impact of economic slowdown on the real estate projects was minimal. Out of the total real estate projects worth US$ 543 Billion, mere 4% have been cancelled or delayed. Hence, all these factors have fueled the consumption of iron and steel in the Kingdom to reach around 14.8 Million Metric Tons in 2009 and will boost to over 26 million tonnes by 2015. The steel consumption in the Kingdom will grow 14% CAGR during 2012-2015.
At present, the steel industry in Saudi Arabia is highly import oriented. However, the situation is expected to reverse in future with the escalation of domestic production. The share of imported steel will see a downward trend in coming years as several major capacity expansion plans of manufacturers under pipeline.
The factors which will drive growth in Saudi Arabia’s steel industry during the forecast period and it will become the fastest steel producing and consuming nation in the Middle East region. The increase real estate projects in different parts of the country are currently the key boosters, and this trend coupled with government initiatives will play a greater role in promoting reforms and increasing competitiveness.
Known for its richness in petroleum resources, Middle East region is now emerging as a strong contender for steel industry as not only government-backed projects but also independents have been heavily investing in the steel capacities that is poised to change the recognition of the region from oil pocket to steel hub in coming years.
Saudi Arabia’s $385 billion construction boom
Saudi Arabia comprises the largest construction market in the whole of the Middle East with multi-billion dollar projects under way and many more in the planning stage by both the public and private sectors.
In 2009, it has invested on the infrastructure and public sector building $80 billion with planned spending $385 billion between 2011- 2015. Plans include building 600 new factories, schools, doubling desalination capacity, increasing electrical generation and distribution. Some 600,000 new homes are to be built in the next four years with many more planned.
The growth is primarily likely to be led by residential development and mixed use projects apart from infrastructure projects fuelled by the large demand supply gap in the residential segment and the large disposable incomes of the predominantly native and largely urbanizing young population of the Kingdom.
Oil and Gas Continues to be the Pivotal Industry
The world’s largest producer of oil and an important world player in natural gas, with an oil output of nearly 8 million barrels per day and holding gas reserves of up to 230 trillion cubic feet as of 2010, Saudi Arabia continues to be a dominant player in the world oil and gas markets in spite of its efforts to diversify and encourage greater contributions of other sectors to its GDP.
As of 2010, the oil and gas sector contributed nearly half of the country’s GDP. Due to its strategic importance not only in funding its ambitious diversification programmes, but also its role in regulating global oil prices, this sector continues to be dominated by government owned corporations. While the government has plans to spend nearly US$400 billion in various oil and gas projects across the kingdom, it also aims to attract global investment in the sector to the tune of US$1 trillion over a period of fifteen to twenty years in bolstering this cash rich sector. The estimated value of construction contracts expected to be awarded in the oil and gas sector between the years 2008 – 2013 in Saudi Arabia is valued at over US$ 108 billion. However, high regulations and fluctuating oil prices continue to be the key challenges towards the government achieving these goals.
Saudi Arabia accounts for 75% of GCC petrochemical production
Petrochemical industry is the second largest industry in Saudi Arabia. In recent years investment in petrochemicals have increased aiming to exploit the great potential of the sector. There were large players in this sector for decades, such as the state owned Saudi Aramco and the Saudi Basic Industries Corporation (SABIC). These companies are ranked among the world’s largest petrochemical producers. In Saudi Arabia there are large proven deposits of hydrocarbons, chemical compounds, ethylene and propylene, benzene and xylene isomers that gives great prospects to the country and the region industrially.
The Middle East is probably the most important influence on the global petrochemical industry and Saudi Arabia accounts 75% of GCC petrochemical production, A major part is exported and it is mainly concentrated in the industrial cities of Jubail and Yanbu. The Kingdom’s petrochemical industry enjoys a natural competitive advantage due to the availability of low cost feedstock on account of vast crude oil and natural gas resources.
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