Bahrain's biggest steel company will take over a Saudi rival by next month as it pushes on with an expansion effort to become the Middle East's first fully integrated producer, says the company's vice chairman.
Foulath's acquisition reflects its strategy to control every link in the steel supply chain, from iron ore mines to the output of finished products, all with a view towards lowering its costs of production in a continued down market, Khalid al Qadeeri, the vice chairman and managing director of Foulath, known formally as Gulf United Steel Holding, said on Monday.
The company would commit billions of dollars to its expansion effort, Mr al Qadeeri said, and would put up as much as 70 per cent equity in each investment. "In a good market everyone makes money, in a bad market, if you're not integrated, you won't survive," he said. "You can't survive as a standalone [plant]." Other regional producers, including the UAE's Emirates Steel Industries and Saudi Arabia's Hadeed, have pursued their own integration strategies but have yet to invest in raw material "pellet" plants or iron-ore supply.
Prices for imported steel rebar in the Gulf, a benchmark for the industry, have increased 16.5 per cent over the past 12 months to US$600 a tonne but remain well off the record of $1,525 reached in July 2008. Prices could hit $700 a tonne next year, said Robin Parker, the regional manager for Stemcor, the world's largest steel trading company. Foulath's acquisition target, a steel mill in Saudi Arabia, will be fed by barge with steel pellets produced at its plants in Bahrain, Mr al Qadeeri said.
He declined to name the company or its output capacity but said it was the only one in the kingdom geared towards producing light and medium steel sections. "Right now we are acquiring a company in the Gulf region … we will finalise the deal by November," he said at a steel conference hosted by MEED, a business magazine based in London. The company in question is almost certainly United Gulf Steel, which operates a mill in Jubail producing 450,000 tonnes per year.
It has been rumoured as an acquisition target and was the only one in the country whose plant matched Mr al Qadeeri's description, said a steel industry analyst who declined to be named. Officials at United Gulf Steel could not be reached for comment yesterday. Foulath's competitive advantage over the leading Chinese producers now amounts to $252 a tonne, said Anurag Bisaria, the director of the metal manufacturing projects division at Gulf Investment Corporation, an investment vehicle owned equally by the six GCC governments that in turn owns 50 per cent of Foulath.
Foulath's cost advantage, reflecting the lower cost of energy and transport in the region, was applicable to other GCC-based steel producers, he said. Foulath already controls 55 per cent of the MENA market for steel pellets, a raw material used in steel mills, after starting up an expansion plant in January, Mr al Qadeeri said on the conference sidelines. It plans to build additional pellet plants in Alexandria, Egypt, and in Salalah, Oman, in partnership with local investors, he said.
It is also building a $1.2 billion (Dh4.4bn) three-part steel plant in Bahrain, adjacent to its pellet plants, that will turn a portion of the pellets into finished, heavy-steel products such as I-beams for the construction industry. The plant is 49 per cent owned by Yamato Kogyo, a Japanese company, and is due to be completed by the beginning of 2013. Foulath's goal is that half of the pellet output from Bahrain will be steered towards in-house steel-making plants, including the acquisition in Saudi Arabia, Mr al Qadeeri said.
Foulath is also in talks with three companies in Brazil to take a stake in an iron-ore mine that would supply up to half of the company's requirements.
cstanton@thenational.ae
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
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more from Janine di Giovanni
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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