Dr. Kamal DJoudi, Secretary General of Arab Iron and Steel Union, interview with Metal Expert
Having started steel business several decades ago mostly as importers, the Arab countries managed to develop as steel producers and even exporters, becoming important players in the global market. The region, however, does not plan to rest on laurels and thinks about further upstream and downstream transformations to adjust to the market reality and challenges. Metal Expert had a unique opportunity to talk with Dr. Kamel Djoudi, Secretary General of the Arab Iron and Steel Union (AISU), who has many years of experience as a top manager in the steel business and is well regarded by the industry.
Despite some headwinds in different countries, MENA is still rather healthy market in terms of steel consumption. What is your opinion about the current situation in key regions – GCC and North Africa?
It is a well-known fact that the expectations of steel consumption rate in any country are mainly related to the GPD dynamics because the steel industry is a key element in the development process. Some countries around the world have suffered from the low GPD growth rate including the Arab countries in the Gulf area and North Africa, especially the oil-producing countries.
The volume of government spending on projects varies from country to country depending on the financial abilities. The Arab countries are characterized by a strong relationship between the steel demand and oil prices and the availability of financial surpluses for implementation of the projects, which in turn require more investment in the iron and steel industry.
These countries have strengthened their efforts in implementing numerous development plans and diversifying their economies away from oil, and this is evident in Saudi Arabia, UAE and Algeria.
World steel demand in 2019 is expected to hit 1,681.2 million t, up 1.4% from 2018, while demand for long and flat steel products in the Gulf area and North Africa is expected to be 42.3 million t.
The huge investment in the construction and reconstruction projects established by the Arab countries is the key word and a strong indicator of the prosperity of the steel industry in the Arab countries.
Reinforcing steel is the main product of most Arab steel companies, accounting for 70% of total steel production in the region. The main reason is the high demand for reinforcing steel to cover the needs of the large projects in the Arab countries, especially the construction and reconstruction projects.
What are the main challenges for the Arab steel sector today?
The iron and steel industry of Arab countries is facing several challenges, four of them are the most important. The first one is energy supply and cost, as our industry is an energy-intensive. Another headwind is outdated technologies at some production assets and lines and necessity of their upgrade. The third aspect is financial matters as mills need to have enough foreign currency to cover the requirements for the imports of raw material supply. And last but not least the importance of providing operating and raw materials, which amount to 70% of the production cost, which leads to higher final product cost and the inability of domestic mills to compete with imported steel.
Closure of many markets in 2018 has brought the trade protectionism problem to the next level, forcing both exporters and importers to adjust to the new reality. How do you evaluate the influence on the world steel trade overall and Arab countries in particular?
There is trend towards a political imposition of excessive trade measures for the protection of the domestic industry or dumping policy as a motive to increase the volume of exports or individual control in international markets. The right is not given at all to either importers or exporters to ignore the principles of free international trade. On the contrary, the liberalization of international trade has sprung from the concept of expanding the global market base and anti-dumping as a prerequisite for creating an atmosphere of mutual trust to ensure fair competition that will support and develop the concept of free trade in the global market.
If someone benefits in the short term, all countries will lose. Moreover, everyone will be a loser as consequences of any future global trade war, including countries that impose excessive protectionist tariffs or selectively apply protection that could lead to a reduction in the world trade and a decline in the global economic growth in various countries.
In the Arab world, the indirect impact will be greater than the direct one as countries with major economies, notably China, the EU, Turkey and the CIS resort to export steel production surplus to alternative destinations. The Arab countries are the closest and easiest market to attract those surpluses, which could lead to lower prices and increased competition between domestic products and imports, while they have been witnessing certain stability in recent years through the major projects implemented in the region.
Today, more and more producers from the Arab world are looking to exports amid insufficient local demand, with Saudi Arabia being among one of the best examples. How long is this trend lasting? Which countries will be exporters in the future?
The companies usually resort to export when they have a surplus in production in the local market that leads to the search for alternative markets or when foreign currency is not available in the domestic market, companies have to export for getting foreign currency to complete their activities and provide raw materials.
In general, the steel industry is divided into integrated factories and rolling mills. The origin of the steel industry is integrated factories, however, some investors resorted to the construction of rolling mills using billet semi-finished product exempt from customs fees for quick profit. This means that the first beneficiary is the exporting countries of the billet because they found for themselves a new market where the products are supplied without any fees, thus ensuring the continued operation of the steel industry in their countries.
But what is more dangerous is that rolling mills are selling their final products at a lower price than the parallel price for the same products from national companies based on integrated production. This puts the integrated business in a permanent economic predicament in front of rolling mills and forces them to think about ways to reduce the continuing losses, and so to resort to export. We note that all exporting companies in the Arab countries are integrated plants.
This situation will continue as long as there is a difference in prices between the domestic product prices of integrated plants and the prices of rolling mills and the prices of cheap imported steel.
The availability of raw materials at competitive prices is the first-order condition to build sustainable business. How do you see the current state of raw materials supply in MENA and its prospects?
The prices of raw materials for the steel industry are definitely affecting the prices of finished products. The most important inputs are iron ore and scrap. Iron ore trade ranks second in world trade volume after oil trade. In addition, iron ore production accounts for 85% of the world’s mineral production and is the most important raw material after oil.
Mauritania is the largest Arab country producing and exporting iron ore, with an export volume of 13 million tpy. Mauritania opened its doors to the Arab investors in iron ore mines and provided feasibility studies related to iron ore.
Algeria also has Ghar Djebilet located in the far south-west of the country, one of the largest iron ore mines in the world. The mine reserves are estimated at 3 billion t and are being studied in addition to iron ore in Egypt, Tunisia and Morocco.
Several seminars have been held to explain the benefits of using iron ore mines in Mauritania to ensure the continued flow of iron ore pellets to the Arab steel projects so that the Australian and Brazilian companies do not monopolize the trade of these raw materials. The Arab steel producers should work to secure the iron ore reserves to prevent business from any future crises as happened in 2010-2013.
The AISU advised the urgent need to expedite feasibility study of the possibility of establishing the Arab mining companies and investing in the development of iron ore and raw materials available in a number of Arab countries in North Africa and the Gulf area required for steel production. Moreover, the AISU underlined the importance of establishing a company with joint Arab capital to invest in iron ore and to identify a unified Arab map for the best places to exploit iron ore to guide investors to invest in its production.
Algeria is your native market as you have been working as a top manager of key steel companies for many years. How did the steel industry change in the country? What are the current challenges and opportunities?
Algeria has undertaken massive development projects in infrastructure, reconstruction and construction over the past years, making Algeria in need of iron and steel products to implement these projects. Algeria relied heavily on importing its iron and steel needs from abroad, especially from southern Europe and Ukraine. The volume of steel imports was more than 2 million t a year, costing the country billions of dollars.
Now the iron and steel sector in Algeria has three axes. The first one is state-owned Sider El Hadjar steel complex, which has developed a rehabilitation plan after the quit of the foreign investor in 2016 aimed to raise the company’s production to 1.2 million tons per year.
The second axis is the partnerships held by the government sector with foreign investments such as Algerian Qatari Steel Company and its Bellara steel complex. The enterprise is a joint venture between Group Sider, which owns 51%, and Qatar Steel with a 49% share in the business. It has been operating at a production capacity of 2 million t and is expected to inject new investments with a production capacity of 4 million t. In addition, an agreement was signed between Algeria’s Group Sider and UAE’s Emarat Dzayer Group with 51% and 49% shares respectively for the production of steel pipes and rolled products with a capacity of 1.3 million t annually at a first stage.
The third axis is the investments made by the private sector in the iron and steel industry, notably the Turkish company Tosyali. The company recently inaugurated the third phase, including a new plant for the iron ore processing with a production capacity of 4 million tpy of pellets and a 2.5 million tpy steelmaking unit with the largest DRI-module in the world and big arc furnace.
Algeria’s iron and steel production is expected to rise from 5 million t to 12 million t in the next five years and to 16 million t a year by 2030 owing to projects that have been completed recently, which will put an end to steel imports and open export.
Algeria has resorted to this as a result of the import restriction policy over the last three years which encouraged the entry of new investments in this sector.
2018 was not an easy year for the global steel industry due to reshaping of trade flows. How do you see the future of the steel business?
Yes, 2018 was not an easy year, with the growing challenges the global steel industry face beginning with the US tariffs on steel imports at 25% in March. After that many other countries followed the protective procedures or retaliatory such as the European Union, Canada and Turkey; the same trend was taken by Malaysia, Chile, Vietnam, Thailand, Indonesia, South Africa, India etc.
At present, some countries have tended to focus on reducing the cost of production, capital expenditures, management and marketing expenses, reducing employment and stopping some high-cost, environmentally polluting production lines and the development of production processes to reach an appropriate level of cost for final steel products so that they are able to compete with prices for import steel.
Therefore, the AISU see the importance of continuing follow-up to the global changes in the industry and strive to create a common market among the Arab countries and think beyond 2020, which will see the completion of most major projects in the Arab countries such as Saudi Arabia, the UAE, Egypt and Qatar. It is also necessary to build strategic alliances at the level of Arab countries, expand investments in value-added products, not rely on ordinary steel products, and direct production surpluses to the needs of markets in Arab countries to achieve as much as possible integration in the region. This is the next challenge for the Arab steel industry.
What is the roadmap for Arab steel sector development by 2020?
The Arab steel industry has a lot of tasks for the next few years but the roadmap can be summarized in several important points. The steel sector in the Arab world is very important for its association with ambitious investment plans by the local governments, therefore, it must work on the protection of the domestic steel producers, which is the locomotive for the development of all industries. Facing dumping practice, the Arab markets that suffer from the invasion of foreign steel products need to impose safeguard and anti-dumping duties on imports after conducting the necessary investigations in accordance with WTO rules. Another side of this matter is the Arab countries must apply standards to improve the quality of imported products and reduce the quality gap between domestic and imported products.
In addition, the Arab world should pay more attention to the optimization of production cost, which is high due to several factors, most notably the rising prices of raw materials used in the steel industry. We have to exploit iron ore mines in many Arab countries to cover the needs of steel mills. We need self-sufficiency in billet required for rolling mills.
Another direction is that the Arab countries should produce the value-added products used in the automotive, engineering, petrochemical and food industries.
We should form partnerships in giant entities from the private sector and used advanced technologies that without doubts constitute the right way to achieve the common interests of the Arab steel industry.