TBY talks to Alex Demirdjian, General Manager of Demco Steel, on the iron and steel market in Lebanon and the Mediterranean basin, as well as the company’s growth in the international shipping business.
TBY Can you tell us how Demco Steel came about?
ALEX DEMIRDJIAN Demco Steel was originally established by my great-grandfather. He changed his last name to Demirdjian over 100 years ago, a name which is derived from the word for iron-maker in Turkish. Since then, several generations have been successfully engaged in the iron and steel business, and today the company has become one of the biggest players in the Middle East, especially in Lebanon, where we enjoy the largest market share and are a well-known name in the Lebanese economy.
What is the size of your company?
With local and trading activities, as well as our melt shop plant in Syria, we have over 350 employees and our sales should be north of $500 million in 2011. Once we reach cruising speed at our new plant by the end of 2012, we will significantly increase our sales figures, further cementing our central role in the regional steel sector.
How have you seen the sector change over the past few years?
Price volatility over the past five years with anything related to commodities has been extremely volatile and at times unpredictable. The challenges we face in working in this environment are enormous, and since we are also involved in shipping, where volatility was of epic proportions, timing was essential. No matter how sound your business model, and how competitive a company is, if the timing is off then it’s all over. Steel prices fluctuated and at times increased/decreased more than four fold during this time frame. Good capitalization was essential for us to be able to ride those waves and adapt to such market conditions. Being a step ahead helped us turn this volatility to our advantage, and this in turn enabled Demco to become unchallenged as the market leader in Lebanon.
What steel products do you manufacture?
Our main manufacturing center is in Syria, less than two hours away from our facilities in Beirut. Once we reach full capacity, we will produce almost 1 million tons of liquid steel from scrap. In Beirut, we have a service center for slitting, leveling, cutting, and bending wire mesh and tube lines.
What business sectors are important to Demco Steel?
The business sectors important to Demco Steel are mainly in construction and industry. The construction sector constitutes around 60% to 70% of our business.
To what extent do you work with the government?
We rarely deal directly with the government. However, owing to Lebanon’s unfortunate history, there has been a lot of construction and reconstruction going on from the private as well as the public sector. The government appoints private contractors to undertake projects, and they in turn use our products. We have supplied steel products for the construction of airports, road and bridge networks, dams, a sports stadium, and a significant portion of the Downtown Beirut project.
What kind of projects have you been involved with in the private sector?
The prices of land and real estate have skyrocketed of late, creating a strong level of demand for almost any residential or commercial space. Almost all forms of construction require steel. We are therefore very much involved in the private sector construction industry.
What is behind this growth in local construction activity?
There are more than 10 million Lebanese living outside of Lebanon. Each and every one of them has a strong sense of attachment to their homeland because they either have family members still living here or they feel nostalgic about the country. Many Lebanese were uprooted during the civil war period and reluctantly left to find new opportunities. Many of them return to buy real estate and property so they can feel that they still belong here. They are convinced that at some point in the future they will come back to Lebanon and retire. This creates a lot of demand and provides a considerable amount of support for the market. These same people transfer considerable amounts of funds back home to Lebanon, which makes our banking sector extremely liquid and helps prices move up even more thanks to the abundant loan programs that have been made easily available.
What is your export/import ratio?
Out of our total production, around 25% to 30% is exported. The rest is destined for the local market.
Which countries do you work with?
We mainly work with countries situated around the Mediterranean Basin, though our activities are not limited to that region alone. Market conditions sometimes allow Demco to make plays in China or South America. This really depends on the economic conditions in each area.
What are the advantages of manufacturing in Lebanon?
Lebanon has a good geographic location in the Middle East. With today’s shipping rates and fuel prices, this helps in making our exports to the area relatively cheap. We also enjoy good quality labor at very reasonable wages. Such wage differences and the low level of labor constraints work significantly to our advantage if we compare Lebanon to other modern economies.
Do you have any plans to expand your production facilities?
Nothing should stay static. It is natural for things to change. The notion of staying idle is very akin to death. If we don’t expand at some point, we will lose our edge and die, just like the cells in our body. Every day we are looking to expand and add to our production line. However, even more importantly, we must also diversify our range of products and activities. In addition to our growth in the steel sector, we have also entered into many other forms of investments. Demco Group is active in the development of several 300-unit real estate projects in Beirut as well as real estate projects in Lebanon’s mountain resorts. We are also involved in the shipping industry, where we regularly buy and sell bulker ships. We are currently increasing our exposure in this sector as we believe that the market has bottomed out for now.
How do you think the image of Lebanon will change for investors in the coming years?
Our recent history was not foreign investor friendly, as a result of too much instability and a lack of transparency. However, we are now the only country in the Middle East that has not been affected by the Arab spring movement. The growth and enhancement of democracy in the region should be positive in that respect for our growth prospects.
What are Demco Steel’s future goals?
Since we are heavily involved in this part of the world, I think we will now focus a little more on our shipping business, as this is where I see the best opportunities. More importantly, having the entire world to market to is certainly a nice challenge.
© The Business Year