- – Strategies for the next five years include focusing on value-added products
- – al romaithi: “consumers are shifting to premium steel as it guarantees optimum returns on their investment”
Abu Dhabi, United Arab Emirates, 19 August 2014
UAE’s largest steelmaker Emirates Steel has set the stage to further expand its global presence and add more value-added steels to its product basket. With better demand prospects and mega expansion plans in the pipeline within the Middle East region, Emirates Steel – the UAE’s only integrated steel producer of long products – told the media in a press release yesterday that it is now sharpening its focus on high-margin, high-strength value-added products (VAPs).
In an environment of low capacity utilization, Emirates Steel is revisiting its optimization models. Its strategies for the next five years include focusing on value-added products despite challenges of higher setup times and smaller production campaigns. The Middle East region imports most of its value-added steel and Emirates Steel believes it can capitalize by manufacturing these products domestically.
“We have been closely observing the benefits large steel producers in the world are reaping by progressively moving into value-added products and we are hopeful that by adopting this model we will continue to protect our bottom line amid the current challenging industry circumstances,” said Emirates Steel’s CEO HE Saeed G Al Romaithi. Steelmakers from CIS have a larger share of basic grade steel in their steel production mix and would directly compete with the Chinese as compared to the Japanese or European steelmakers, who have a larger share of value added steel in their product mix.
Steelmakers globally are continuing to maximize cost-cutting, seeking to improve productivity and shifting focus to high-end value-added products, said a recent EY report, which estimated forecast global demand for steel to grow faster in 2014 at 3.3%, with more demand growth expected outside China, including India, Brazil, and Russia, as well as emerging markets in the Middle East and North Africa.
VAPs are mainly finished steel and are termed so depending on their treatment or their end use. The products vary from sheet piles to high silica wire rod to long steel bars to alloy steel. The end users are primarily the construction and fabrication sectors. “Consumers are shifting to premium steel as it guarantees optimum returns on their investment,” pointed out Al Romaithi. This will eventually result in generating higher profit margins for the Senaat-owned steel company.
For the past couple of years, demand for special steel, with superior quality to meet stringent application norms of various market segments in the Middle East region, has been growing. The primary focus of these product developments are stronger steels with higher tensile strengths and steels with special mechanical properties so that lesser quantity of steel is required by customers for similar applications.
Specialized steel products have been the focus of recent expansion for all major producers of steel in the world and Emirates Steel is now bucking the trend. Not many steelmakers in the Middle East region are present in the value-added segment yet and this is one reason why the UAE’s $3 billion-steelmaker is expanding its product manufacturing lines.
“We are committed to supplying innovative steel solutions that add real value to our customers’ operations,” asserted Al Romaithi. “The industry is moving from commodity-grade steel to high-grade steel, which provides higher margins,” he said. “To remain competitive domestically and in our export markets, we need to grow the share of value added and sophisticated steel products in our export basket,” he added. The effort is to add to the steelmaker’s long product mix VAPs which allow better realizations.
The idea is to move from a commodity grade to high value product grade which is less volatile and less exposed to market impulses. “Let’s not forget that there are few players in this value added products segment,” explained Al Romaithi.
Emirates Steel recently started developing steel for building offshore oil rigs, which was earlier being imported. “We are now developing new grades with higher mechanical properties to meet market demand in the oil and gas sector,” Al Romaithi pointed out. The new structural steel that the steelmaker has started developing is the S355J2, which is intended for the supply of offshore oil and gas structures.
By producing these enhanced grades, Emirates Steel should be in a better position to compete for a larger share of the heavy sections market in the MENA region, which is currently supplied largely by imports. “We have identified the product grades that are required by our customers and we are producing them to order,” he said. Demand for structural steel in the GCC region is expected to reach 2.65 million tons by 2018 compared to 3.85 million tons for the entire Middle East, according to Emirates Steel estimates.
Before that, Emirates Steel joined hands in a strategic collaboration with the UAE’s peaceful nuclear energy program for power generation run by the Emirates Nuclear Energy Corporation for the supply of high-value steel products for nuclear plants. As an ASME-certified steelmaker, Emirates Steel has so far delivered around 100,000 tons steel for use in the construction of the nuclear reactors and peripheries at the nuclear project site of Barakah in the Western Region of Abu Dhabi. Further orders will be placed over the course of the next six years as the construction of ENEC’s four nuclear energy plants progresses.
“We want to slowly but gradually ramp up our production of the value-added steel category,” said Al Romaithi. “Our future growth will be driven by value-added products, knowing that the production of premium grade products will not only help us improve realizations but will also add to our topline growth,” he said.
Emirates Steel hopes that the transition to VAPs can be fruitful. With all types of steel users, from house builders requiring ribbed bars to galvanized roofing sheets to automakers needing high-strength ultra-low alloy material, becoming increasingly demanding about quality, Emirates Steel believes it will have significant demand on its hands.
“As one moves up the steel value chain, every stage of steel production entails incremental value addition,” explained Al Romaithi. “There is an urgent need to upgrade our technology and move to high-value products. This will augment our margins, increase our supply to the booming sectors of the economy which need premium steel, and ensure greater penetration of overseas markets in the form of higher exports”, he added.
Production of value-added steel requires the application of technology not available to secondary steel producers and, therefore, is niche business. Taking that into consideration, Al Romaithi concluded that “Emirates Steel branding structure includes the highest standards for maintaining superior quality products and an efficient distribution network to serve our clients”.