Saudi steel tax affects Gulf players

Steel exports to Saudi Arabia from the Gulf Cooperation Council (GCC), and in particular the United Arab Emirates, have been severely affected since July 1, 2022, when the Kingdom imposed a 15 % on steel imports.

“Until now, GCC manufactured goods were exempt from import duties to Saudi Arabia. But from July 1, Saudi Arabia started imposing 15% tariffs on different products, including steel. This has had a huge impact on GCC steel players, [and] especially in the United Arab Emirates, because Saudi Arabia is a big market for certain steel products,” said Steevan D’Souza, vice president of Reliant International Group, which produces and exports steel billets, wire rod , slabs, as well as petrochemicals and petroleum products. .

In a June 2020 report, S&P Global Platts cites sources as saying that Saudi Arabia has raised import duties on various semi-finished and finished steel products to between 10 and 20 percent of the product’s value, up from previous levels. 5 to 10%. , effective June 20, 2020 and applicable to non-GCC producers.

The Kingdom’s steel imports include billets, rebar, and hot and cold rolled coils.

Dr. Musa Souri, CEO of Union Iron & Steel Company, an Abu Dhabi-based rebar manufacturer, said the 15% tariff has had a huge impact on GCC players in terms of rebar export.

“We were selling a decent percentage of our production to the Saudi market based on actual market demand and we were trying not to oversupply the country. Maybe the authorities decided it was best to protect their own market,” he said.

Last month, Saudi Minister of Industry and Mineral Resources Bandar AlKhorayef said the government was focusing on location steel products and reduce imports by 50%.

Souri is optimistic that the situation could change. “…I think this is a transitional scenario in which the GCC could eventually come to an agreement. Maybe things will change,” he said.

D’Souza that the export situation is currently grim, pointing out that previously the UAE exported around 300,000 to 400,000 tons of wire rod and downstream products to Saudi Arabia.

“Today, exports from the United Arab Emirates to the Kingdom for these products are almost negligible as Saudi buyers do not find the prices competitive with local markets. As an investor, we were exporting around 40,000 tons of yarn machine to regional markets, Europe and Africa. Saudi Arabia was about 20% of our business, which is almost zero at the moment.”

Meanwhile, Saudi Arabia produces about seven million tons of various steel products per year.

“Players like Saudi Iron & Steel Co (Hadeed) are the backbone of steel and by-products. But look at the current projects. For example, Saudi Arabia has given the green light to build the city of NEOM. The first phase itself is expected to cost 1.2 trillion Saudi riyals ($319 billion). This means that there will be massive construction activity for a few years and the demand for steel will increase. Thus, a strong supply will be needed to meet the demand of all Saudi Vision 2030 projects in the Kingdom.

Strong investor interest

In fact, many foreign steel companies have announced major production-related investments in Saudi Arabia.

On September 1, Zawya Projects announced that the UK-based steel manufacturer JO Steel Holdings will invest $865 million to build an integrated billet manufacturing plant in the industrial city of Ras Al-Khair.

India’s Essar Group announced the same month that it planned to invest $4 billion in an integrated flat steel mill in the industrial city of Ras Al-Khair, according to Zawya Projects. reportquoting The Economic Times newspaper.

D’Souza noted that such investments will take three to four years to materialize.

“Thus, it would need a short-term solution because Saudi Arabia still has to depend on other countries for products like wire rod. However, at a recent conference, my main conclusions were that if the tariffs of 15% makes it difficult to sell GCC players in Saudi Arabia, the demand gap will be filled by countries like India and China as their prices are more competitive.

Souri added that changes on the pitch are inevitable. “All countries will go through the stages where they will first build infrastructure and cities where you will see more use of long products. Then they will go to the stability stage where they will need different types of steel at the “beyond rebar and long products. Demand will shift to profiles and flat products, and that’s where the market is starting to grow and mature – see Europe for example,” a- he declared.

On the other hand, in the context of the upcoming COP 27 summit in Egypt, the Saudi steel industry could be in an ideal position as decarbonization pressure on hard-to-reduce industries increases. Investment Minister Khalid Al-Falih recently Underline that CO2 emissions from steelworks in the Kingdom are 60% lower than the world average due to the use of natural gas and electricity instead of coal in production processes.

Global trends

Overall, steel prices fell around the world in the last three quarters of this year. D’Souza said: “Wire rods sold at $900 fob [free on board] amount to $620 fob today. In addition, energy costs in Europe have doubled, although demand is expected to increase significantly. »

He pointed out that most steel producers in Europe have stopped production and some factories have closed

|But sources could change where Far East Asia becomes more competitive for imports, as energy cost and labor cost are more feasible and manufacturers try to capitalize their export volumes. Therefore, overall, the market will pick up soon,” he said.

Souri agreed – “In the short term it’s not clear but in the medium/long term markets will see more stability,” he said.

(Reporting by Sona Nambiar; Editing by Anoop Menon)

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