With the production of crude steel in the Middle East foreseen to reach 26.1 million mt by 2010 from 15.4 million mt in 2006, GCC (Gulf Cooperation Council) steelmakers need to merge in order to prosper and be able to cope with soaring capacities and possible declining trends in demand, says a new study carried out by the Gulf Investment Corporation (GIC).
As there is a strong energy sector in the GCC region, the influence of globalization on local steelmakers is unlikely to be felt in the short term; however, the long term prospects are different. Flexibility, good market focus and efficiency are regarded as the major elements which will determine the profitability of the GCC steelmakers.
China is indicated as a potential risk for the local producers in the GCC countries, such as Saudi Arabia, Kuwait, Bahrain, Qatar, the UAE and Oman. As a solution to this threat, mergers are recommended in order to maintain competitiveness.
Steel demand in the GCC region is expected to be in the range of 20 million mt in 2007, rising to 30 million mt in 2010; while that in the Middle East is foreseen to increase from 70 million mt to 90 million mt in the same period. In addition, net imports of products such as ingots and semis, steel tubes, seamless pipes, hot rolled rod in coil, cold drawn wire in coil, welded tubes and cast iron pipes, which are mainly imported by Kuwait, the UAE and Saudi Arabia, Oman and Bahrain, are expected to drop to 5.4 million mt by 2010 due to the expected rise in domestic consumption.
Furthermore, the study pointed out the merger between the world's largest steel company Mittal Steel, whose total output exceeded 60 million mt in 2004, and European producer Arcelor, whose production was 50 million mt for the same year, as the main result of the changing balances in global demand and supply.