The Business Year

Abu Bucker Husain

CEO, Al Ghurair Iron & Steel

Mitsuru Anezaki

General Manager, Al Gharbia Pipe Company LLC

With construction on an upward trajectory, steel producers see brighter days ahead after a rocky few years.

How do you project demand for your products to grow?

ABU BUCKER HUSAIN We presell our production; we do not produce and keep anything. We always take orders and produce based on customer orders. We currently have about two to three-month order book backlog, which has been the case since 2016. Our product is directly related to the construction industry, and whenever the construction industry improves, the demand for our product also increases. Apart from a small percentage to pre-engineered builders, 80-90% of our sales go to the heating, ventilation, and air conditioning segment, where the usage of that product comes in toward the end of construction of any major project. It is also a small percentage of the total construction cost for the project. That segment has been doing well in the last few years.

MITSURU ANEZAKI Raw material prices are rising, though the final products are not necessarily in line with that trend. That is a significant challenge because steel is used everywhere in industry, automotive, construction, and infrastructure, and so on, and we have to source the plate for the raw material. After Chinese manufacturers were regulated, the global market outlook is positive. In Japan, the 2020 Olympic Games will continue to drive demand, the automotive industry is extremely stable, while the shipbuilding industry is recovering; however, for oil and gas, although it is picking up, it is still not that positive, as price hikes make margins even tighter, and the only solution is to grow the top line further.

How have your market targets evolved?

ABH Currently, we sell about 60-70% of our production in the domestic market, which is the UAE, Saudi Arabia, and the GCC, with the UAE and Saudi Arabia being the largest markets. We export about 30%. The new wave of reforms introduced by the Crown Prince Mohammed bin Salman has improved the market considerably. The situation in Qatar has also not been helping us; however, Expo 2020 and all the new projects in the construction segment will lead to solid demand in 2H2018 in UAE. We expect the industry to improve, though 1H2018 was a little challenging, especially with the US duties and unmatched expectations that spurred negativity in customers.

MA Our business model before was 60% domestic customers and 40% for export to Oman, Saudi Arabia, Kuwait, and Qatar. If a company manufactures for local customers, then it is better to have a UAE company. Thus, we chose a non-free trade zone and agreed to a 49-51% share with Senaat. After comparing freight and production costs, we decided to purchase plates in Japan and other countries, ship them here, and make pipes to sell to the regional market. The current expansion projects and the recent announcements of ADNOC’s downstream strategy are likely to drive demand forward, both for onshore and offshore transport facilities. It also fits perfectly within the Abu Dhabi Economic Vision 2030.

Are there any gaps in the local market that could be filled with initiatives to support the iron and steel industry?

ABH In terms of infrastructure development, the government is already taking care of that through the building of new cities, new projects, and a new railway system. The US, following the trend of major economies, implemented tariffs of 25% on steel imports and 10% on aluminum. The Middle East historically has been a trading hub, and the focus has always been to bring in more goods from other countries and either sell it domestically or re-export it. This approach ends up hurting the domestic industry. We need our governments to enact protectionist measures to nurture the domestic market. We cannot sell in most other markets, while everyone else can sell in our market. This can be countervailed in the form of a quota system, tariffs, duties, and preferential treatment for made-in-the-UAE products.

What is your opinion of the impact of shale gas and DRI on the steel industry?

MA Steel needs a complicated process with heating over 1,000 degrees Celsius to turn iron into steel products, especially in the upstream process. I am extremely optimistic about the future of steel in a country like Japan, which has a large advantage disposing of huge capital investments and a great deal of environmentally friendly technologies. The issue will be differentiating ourselves from China and other newcomers, though DRI offers plenty of opportunities, especially in Southeast Asia, where demand is growing, though supply is also increasing. On a global level, the US President is imposing tariffs, which is not a positive sign for the future, as we should compete and improve ourselves so as not to rely on government schemes.



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