As the demand for steel grows sharper in the Middle East countries in general, and in the United Arab Emirates (UAE) in particular (due to the various ongoing various construction and infrastructure projects in the region), the UAE is becoming a hot spot for the implementation of both locally-backed and foreign-sponsored steel projects. The country's favorable geographic position, strong domestic demand and advantageous investment climate makes the UAE a desirable location for the development of the new steel projects.
During the last couple of years the Middle East witnessed an economic boom which resulted in huge infrastructure projects and, consequently, in larger demand for steel products. For instance, according to the International Iron and Steel Institute (IISI) data, in 2005 steel consumption in Middle East countries totaled 34.7 million mt, rising to 37.6 million mt in 2006, while in 2007 consumption is expected to reach 40.7 million metric tons. In particular, rebar consumption is growing very quickly in the region.
Of all the Middle East countries, the UAE can be considered as one of the largest steel consuming and importing countries in the region thanks to its continuing construction boom. For instance, the construction boom in the emirate of Dubai alone is expected to increase rebar consumption to four million metric tons in 2007, while growth is expected to total 20 percent per annum for at least the next three years.
In addition, steel is in high demand from other sectors of the UAE's economy, such as the oil and gas industry which accounts for one third of the country's GDP. In recent years, strong increases in energy prices worldwide provided the impulse for higher levels of investment in new oil field explorations, which in turn has necessitated the construction of new infrastructures and large quantities of steel. Much of the steel required in the country is used for the construction of oil rigs and gas platforms.
The huge steel demand in the UAE and the considerable shortage of domestic steel production have contributed to the setting up of the new locally-based steel projects. In addition, cheap natural gas and electricity along with relatively low labor costs make the country very competitive in steel production. Although the UAE lacks scrap and does not have iron ore resources, the cheap energy costs have created a strong potential for the development of the steel industry based on direct reduced iron methods (DRI). Furthermore, the widespread existence of free trade zones in the country make the UAE even more attractive for the establishment of new steel capacitates.
In light of the above-outlined reasons, it comes as no surprise that the UAE has become one of the hottest spots around for the location of new steel projects.
Thus, Alam Steel Industries, a company with headquarters in Kuwait, has recently inaugurated a 300,000 metric ton per annum rebar processing plant in Dubai Industrial Park and has announced various projects in Sharjah's Hamriyah Free Zone and Dubai Free Zone and Abu Dhabi. In addition, Star Steel LLC - a subsidiary of Dubai-based ETA-Ascon - is to build a new mill in the country.
Moreover, the country's strategic advantages, low production costs and maximized returns on investment have attracted not only Middle East steel producers to the UAE: at the end of 2006, Russian steel producer Metalloinvest Holding (Metalloinvest) announced the construction of a new rebar mill in Sharjah's Hamriyah Free Zone with an annual capacity of one million mt of rebar. The mill is expected to be working at full capacity by the end of 2009. Another CIS steel producer, Ukraine-based Istil, announced its plans to complete a 500,000-metric ton rebar per annum steel mill in the UAE by 2008. Furthermore, officials of the Fujairah emirate disclosed very recently that Japan-based trading house Sojitz Corp. is considering the possibility of building a 1.5 million metric ton a year steel mill in the area as a joint venture project with Australia-based merchant bank Azure Capital.
On the other hand, the largest Indian pipe maker PLS Ltd has also eyed the UAE as a market for expansion, as evidenced by its announcement of a new 75,000 metric ton per annum capacity pipe mill to be constructed in the Hamriyah Free Trade Zone. The spiral pipes from this mill will be largely supplied to the UAE and neighboring markets.
However, with these and other steel projects, the country's consumption of steel (especially rebar) is expected to grow at a faster rate than production (even when planned new capacities are in place) in the UAE. In addition the country's reliance heavily on imports due to shortage in domestic production is not expected to overcome in near future. Therefore, new and more impressive steel production projects are expected to be implemented in the country.