Saudi Arabia’s need for local suppliers

What main challenges does China pose in terms of competition?
In 2018, we produced at around 60% capacity, and we aim to reach 80% next year. To get to 100%, we need to be competitive within the MENA region. However, the cost here is pretty high compared to the cost for Chinese mills. The imported material used to produce our pipes in many cases is more expensive than a finished pipe coming from China, so we cannot compete.
For this reason, we participated in a dumping case against Chinese pipe producers a year ago. Based on it, the GCC recognised damages for the local industry to which we proposed applying anti-dumping duties to Chinese suppliers. However, this decision was rejected.
You see, in the GCC some countries have stronger links with China than others. It’s difficult for it to unanimously approve such a measure. Yet, we have appealed the decision to see if the GCC will grant certain protection to the local industry, especially considering that countries like the US are going down this path by implementing 25% import duties over steel products. Similar measures would be very helpful.

What are the reasons behind Arcelor Mittal’s recent increase in production?
There are two applications in this industry, casing pipes used in drilling and line pipes used for transport. Their consumption in the KSA in particular is big due to high [oil and gas] production and transportation. So, the overall demand for seamless pipe manufacturing is high, being enough to cover 50% of our capacities.
Furthermore, there are several projects led by Aramco in the areas of E&P, fluid transportation and refinery, which will benefit us in terms of pipe sales. There are also plans to replace old pipelines in the region which will give way to a boost in the demand of different steel pipes which we are ready to provide.
You see, Aramco consumes more than half a million tonnes of pipes yearly and aims to consume more. We intend to get some of this volume as we have a capacity of 600,000 tonnes and currently supply them with 40% of what we produce. Our strategy is to offer half of our capacity to Aramco but also develop an export market to eventually enlarge our customer base.

Where does the raw material come from and what cost impact does it have on the final product?
The closest plant that can produce the material needed to manufacture our pipes is in Oman. We also buy from India and Europe. There are mills in Saudi Arabia looking to upgrade so they can produce the raw material we need, but this will still take some time to materialise.
The estimated time to import raw material from outside is two to three months as they have to process it and ship it. This means that you need to always have stock on hand which, at the same time, increases cost and reduces competitiveness.
Furthermore, a major portion of the total cost of our pipes comes from importing the material to manufacture them. I believe that developing local raw material suppliers within the country would be a huge benefit.

How would you rate the investment environment in Saudi Arabia today?
The investment environment here is pretty favourable. The IKTVA [In-Kingdom Total Value Add] programme is bringing in investors who pour their money into the country. When companies start investing, the execution risk steadily decreases, giving way to a favourable environment.
In this regard, Saudi Arabia has a system that is already experienced. Its base is supported by not only one company but hundreds of them. This is seen in the big industrial areas, established environments where it is easier for people to come in and invest. For this reason, the market is relatively mature if we compare it to less developed countries. Once things are in place, it’s easier and safer to invest.

What are Arcelor Mittal’s objectives for the short and long term?
Positioning ourselves as the main steel pipe supplier in the region is our objective. We aim to produce larger-size pipes but also smaller-size ones to match the requirements of important customers. To achieve this, we have invested in business development activities to expand across the industry in which we are willing to co-operate with other local steel suppliers.
However, although the KSA offers many opportunities we want to make sure we are completely established and self-sustaining before taking further steps. In addition, we have improved our overall quality standards, being awarded by Aramco as the “Best Quality Manufacturer.” Therefore, our intention is to follow this path in 2019 in order to strengthen our position both in the KSA and across the region.