Emirates Steel expects higher 2018 GCC steel demand as spreads improve

04 December 2017

UAE-based producer Emirates Steel on Sunday signaled optimism in regional steel demand for 2018 in light of the large number of construction projects going ahead in the Middle East, which may support higher pricing spreads between rebar, scrap and metallics.

Regional indicative margins are currently around their year-to-date highs, with some at multi-year highs. Long steel products and pig iron prices have been supported, along with main EAF feedstock scrap.

Direct reduction iron ore pellet usage in the region as well as in Egypt and Iran may also benefit as steel demand rises.

Emirates Steel “anticipates improvements in market conditions and increased demand for steel with the stabilization of the region’s construction sector,” the company said in a statement.

Projects in the Gulf Cooperation Council countries under construction are valued at $415 billion and a further $630 billion is planned in the next 10 years, it said.

“There are certainly positive macroeconomic drivers for construction that include population growth, expanded economic growth, an increasing younger labor force, and drivers such as UAE Vision 2030 as well as Dubai Expo 2020, in addition to a strong tourism determination for many governments across the region,” Emirates Steel CEO Saeed Ghumran Al Remeithi said in the statement.

“The construction sector in the UAE has recovered from the domino effect of the world financial downturn, indicating that the construction market will remain strong during the forthcoming year,” he added.

Emirates Steel, a DRI-based steel producer, may find improving operating conditions for captive DRI supply, as iron ore fines prices — used as a reference base in many pellet contracts — fell earlier this year.

DR PELLET

An increase in DR pellet premiums expected in 2018, may still leave room for higher margins with alternative feedstocks such as scrap and pig iron, according to S&P Global Platts analysis, based on current price assessment data. To secure DR pellets for 2018, some buyers have sought to finalize DR pellet contracts earlier than usual, sources said.

Platts Black Sea pig iron FOB prices in October and September averaged around $150/mt higher than DRI costs, using Platts monthly estimated contract DR pellet premiums, natural gas and assumed cash costs, according to Platts calculations. The calculation does not include freight rates, from a FOB Brazil pellet export basis.

That pig iron to DRI cost spread increased this year from as low as $48.41/mt in February.

An increase in DR pellet premiums, assuming $7-8/dry mt, may account for an increase in costs of DRI of around $10-11/mt, assuming pellet grade of 67.5% Fe.

Comparing HMS 80:20 ferrous scrap CFR prices imported to Turkey, without any adjustment for iron content in the scrap, scrap in October averaged almost $83/mt higher than DRI costs, using the same DR pellet pricing basis.

The scrap reference between July-September was $93-123/mt higher than DRI, rebounding from as low as $18/mt in April.

As for scrap, the spread between regional benchmark Turkish FOB steel rebar prices with imported HMS 80:20 scrap has widened to the highest levels in 3 years. The spread averaged at just over $211/mt in October, up from a year-to-date low of $145.45/mt in January.

Emirates Steel, which operates in the GCC alongside DRI steel producers Hadeed, Qatar Steel, and Jindal Shadeed, may help meet World Steel Association expectations for steel consumption in the region to grow in 2018 by 3.9% to 24.6 million mt.

“The scene in the GCC is witnessing intensive spending on construction and infrastructure projects, combined with an increase in the regions steel consumptions levels and the production capacity,” Emirates Steel said.

“Today the GCC has various steel plants with the capacity of 21.15 million tons of installed rebar capacity, 3.14 million tons of sections capacity and 3.2 million tons of wire rod capacity.”

Source: Platts