FLUCTUATING RAW MATERIAL COSTS
A significant constraint faced by the GCC market for Sheets, Pipes, and Pipe Products made from Hot-Rolled Coils (HRC) is the variability in the cost of raw materials, especially iron ore, scrap steel, coal, and energy. These inputs are required for HRC production and any fluctuation that occurs affects the cost structure, profitability, and price competitiveness of HRC products across the region. The GCC region has abundant energy resources but is reliant upon imports of key steelmaking raw materials, including iron ore and steel scrap, sourced mainly from markets such as Australia, Brazil, Turkey, and the CIS. This reliance exposes the region to global price shocks, shipping bottlenecks, currency fluctuations, and in some cases trade disruptions. For example, escalation of geopolitical tensions, like the Russia-Ukraine conflict or export restrictions imposed by major exporting sources, can lead to an increase in raw materials price and therefore lead to an increase in the cost of HRC and its downstream products.
In addition, while energy prices are low in the GCC, they are slowly rising with subsidies being lifted and more demand. Since the steel sector is energy intensive, any rising costs of power and fuel impact the cost of operating furnaces and rolling mills and other equipment. Although energy is still considered a comparative advantage in the GCC region, future sustainability policies and carbon taxes may further increase operations, as producers relying on traditional blast furnace methods would be impacted. Overall, the raw materials have an unpredictable cycle of price increase and decline which leads to uncertainty for manufacturers, project developers and end users. Each of these stakeholders will either delay spending, push price increases on their customers, or operate on lower margins, all which distort the market. Long term contracts and projects, particularly in entertainment and industrial manufacturing are becoming more difficult to price due to uncertainty in the original inputs.
Local steel producers also face the challenge of competition from low import prices driven primarily from Asia. In particular, cheaper import prices from countries like China, India and Vietnam can often be produced from economies of scale or longer-term government subsidies. During periods of raw materials price increase, GCC producers will find it very difficult to compete with these low prices leading to the loss of market share.
Restraint Impact Analysis: GCC SHEETS, PIPES, AND PIPE PRODUCTS FROM HOT-ROLLED COILS (HRC) Market oppurtunities
EXPORT POTENTIAL TO EMERGING MARKETS
The GCC market for Sheets, Pipes, and Pipe Products from Hot-Rolled Coils (HRC) has significant and under-utilized export potential to emerging markets, representing an important opportunity for regional manufacturers. As local economies continue to diversify their industrial bases, expand their steel production capabilities, and build modern steel mills, the shift is happening from supplying local demand to addressing export markets, particularly fast growing economies in Africa, South Asia, and Southeast Asia. Emerging markets in Africa (e.g., Egypt, Kenya, Nigeria, Ethiopia) and South Asia (e.g., India, Bangladesh, Sri Lanka) are experiencing rapid urbanization and industrialization. These countries are making considerable investments in infrastructure, housing, energy, water systems, and transportation - all of which will require large quantities of structurally based products made from HRC, including structural steel sheets, water and oil pipelines, and fabricated steel. However, many of these countries have inadequate local steel production capacity and are dependent on imports to satisfy their needs.
The GCC region, particularly Saudi Arabia and the UAE, is strategically located at the intersection of Asia, Africa, and Europe, providing a logistical advantage in exporting goods. The region has established ports like Jebel Ali (UAE), King Abdullah Port (Saudi Arabia), and Sohar Port (Oman) and direct access to important sea-lanes, which means that GCC producers can serve markets with shorter lead times at lower freight costs than competitors located further away in places like China or Brazil. Furthermore, some GCC countries have spent considerable funds extending steel production capabilities (e.g. Saudi Arabia SABIC Hadeed expansions, Emirates Steel Arkan upgrades, Qatar Steel modernization, etc.) which has improved both output and variety of products and positions the GCC to be a semi-finished or finished products exporting region.
Another advantage for the GCC is producing steel to high-quality standards and high-reliability. Of late, GCC countries have been increasingly achieving high-quality standards meeting or exceeding international standards, establishing GCC countries as a reliable alternative to the variable quality steel products typically sourced in low-cost locations around Asia and elsewhere. Trade agreements and bilateral partnerships negotiated by GCC countries with developing countries can further facilitate export activity by lowering tariffs and improving customs processing.
The COVID-19 pandemic caused significant disruption across the GCC's Infrastructure, Automotive, and Engineering (IAE) sectors. Lockdowns, a lack of workers, and reduced project financing caused delays in large infrastructure projects or halted them completely. Automotive production and sales plummeted due to declining consumer demand and disrupted supply chains. Engineering and industrial activity also declined due to changing investment sentiment. In response, governments issued stimulus packages that put a focus on using infrastructure to stimulate economic growth concluding with a manner of recovery from the pandemic beginning in late 2021 and continuing into 2022. In summary, the IAE sectors experienced short-term contraction, but exhibited resilience and recovery in the medium term.
IMPACT ON GCC MARKET FOR SHEETS, PIPES, AND PIPE PRODUCTS FROM HOT-ROLLED COILS (HRC)
Throughout the pandemic, the GCC market for sheets, pipes, and pipe products manufactured from HRC was greatly diminished in both production and consumption. There were factory closures, labor shortages, and stoppage of projects, which led to little or no demand for steel products. Many manufacturers found themselves dealing with the issue of inventory, and cash flow was also greatly impacted. There were restrictions on imports and exports as a result of the global containment of shipping routes. However, once restrictions were lifted, and governments placed more emphasis on infrastructure spending, we saw the propensity for demand to resurface gradually. By the year 2022, the market began to settle with activity in the construction and industrial manufacturing sector. Although the long-term implications remain buried, the short-term consequences on production and sales were catastrophic.
IMPACT ON SUPPLY CHAIN
The COVID-19 pandemic brought vulnerabilities in the steel supply chain in GCC to the surface. Steel products can only be made from raw materials like iron ore and scrap, and rely heavily on imports. Disruptions from shipping and global lockdowns caused delays and cost increases. The GCC faced additional complications from port congestions, fewer available containers and increased transportation costs. Local manufacturers observed their inability to secure their inputs in a timely manner and as a result to still be able to meet their production schedules.
