Saudi's South Steel to Receive $160 Million Loan for Jazan Project

Saudi Arabian steel maker South Steel Company (SSC) (Riyadh, Saudi Arabia) has signed an agreement with the Saudi Industrial Development Fund (Riyadh, Saudi Arabia) for a $160 million loan to partially fund the construction of the $1.35 billion first phase of the Jazan steel mill. Industrial Info Resources (Sugar Land, TX) reports that SSC has also finalized financial arrangement with Banque Saudi Fransi (BSF) (Riyadh) for the remainder amount.

The $160 million loan is estimated to be one of the largest granted by the state-controlled fund to any steel company. SSC is promoted by Pan Kingdom Investment Company (PKIC) (Riyadh), which holds a 60 percent stake in the venture. The remainder is held by various shareholders, including Dubai Investment Industries (Dubai, United Arab Emirates), which has a stake of 10 percent in the project.

The steel mill is located at the Jazan Economic City and is part of the first phase of the "steel cluster" being built by PKIC. The mill will initially produce 500,000 tons per year of reinforced bar and 1 million tons per year of steel plate. The company has projected a total investment of $2.67 billion for future capacity augmentation, which will not only take care of the country's domestic needs but also provide surplus for exports.

The Jazan Economic City is located on the southern coast of the Red Sea, with access to the primary trade routes to the Far East, Europe and the Gulf. It is estimated that 50 percent of the steel production will be used in the rolling mills, while the rest will be used to fulfill local and regional demand. Eritrea, Yemen and Ethiopia are expected to import surplus steel from this plant.

Launched in 2006, the project is being constructed with technical assistance from the SMS Group (Duesseldorf, Germany). In November 2007, PKIC signed an agreement with Concast (Kolkata, West Bengal) and SMS Meer (Monchengladbach, Germany), a subsidiary of the SMS Group, to design and engineer the plant, and for the equipment supply. Concast was selected to handle the supply of equipment for the ladle furnace operations and metallurgical control systems, while SMS Meer would supply the furnace and rebar rolling mills along with other components. Corus Consulting (South Wales, United Kingdom) will provide technical consultancy services. Construction of the steel mill, which began in January this year, will be completed by 2011.

Saudi Arabia, which has proven reserves of about 263 billion barrels of oil, has been a hydrocarbon-dependent economy for decades. Oil has been the main revenue generator and economy booster, with 90 percent of the country's export revenues coming from this sector. About 75 percent of the government income is generated by oil and hydrocarbons.

However, the country has been looking at exploring other industrial sectors to sustain economic growth. The Jazan Economic City is part of this initiative by the Saudi government to open new avenues for industrial development and create new economic growth drivers. The government plans to set up four such industrial centers, including Jazan, to identify and develop other industries in the country and also provide employment opportunities.

The industrial township will consist of power plants, refineries, aluminum and steel plants, chemicals and plastics industries, and pharmaceutical facilities. Recently, Saudi Arabia's Finance Minister Ibrahim Al-Assaf indicated that in the background of the global decline of oil and fuel prices, the country's non-oil sector was poised for growth and expansion.

Saudi Arabia is also growing as one of the biggest steel producing countries in the Middle East. The growth of this sector has been attributed to the unprecedented boom in the construction and real estate industry in the Gulf region. This sector, which saw a rapid slide because of the economic downturn, is now showing signs of revival, with the Saudi market expected to see positive growth if not a full market recovery.

According to the World Steel Association (London), Saudi Arabia's combined steel production from January to April 2009 was 1.37 million tons. In April 2008, the Saudi government, in a move to protect the interests and fulfill the demand of domestic steel buyers, imposed an export ban on finished steel products and scrap metal after steel prices shot to $1,300 per ton from $650 per ton. The imposition was followed by the economic slowdown, which led to a steep slump in steel and commodity prices. This adversely affected the revenues of steel makers in the country.

Now, the government is contemplating ending the ban by July this year, which will help steel producers sell in overseas markets the 2 million-ton surplus that was created because of an increase in domestic production capacity and decline in local demand.