The spread of COVID-19 triggered a chain reaction in the global economy, but for some countries and regions, in particular the Middle East and North Africa (MENA) it became a double shock, resulting in a slump in construction activity and financial challenges. Although it will take a lot of time to comprehend the consequences, the steel industry is thought to get the hardest blow in the post-pandemic reality.
The coronavirus outbreak has had a knock-on effect on MENA economies, putting pressure on the steel sector. According to worldsteel’s short-range outlook, the steel demand will contract by 15.2% in 2020, dropping to 56.5 million t. It means that the consumption will lose around 10 million t. “The COVID-19 crisis, with its disastrous consequences for public health, also represents an enormous crisis for the world economy. Our customers have been hit by a general freeze in consumption, by shutdowns and by disrupted supply chains. We, therefore, expect steel demand to decline significantly in most countries, especially during the second quarter. With the easing of restrictions that started in May, we expect the situation to gradually improve, but the recovery path will be slow,” Saed Ghumran Al Remeithi, chairman of the Economics Committee at worldsteel and CEO of Emirates Steel Industries, underlined.
GCC steel industry is expected to be affected the most by the combination of the COVID-19 outbreak and a plunge in oil prices. The governments have changed priorities and are now following an austerity policy. “GCC heavily depends on oil and gas revenue, which feeds all activities in the region. No matter whether it is big or small projects, all of them will be revised according to priorities. Opportunities for steel suppliers will be minimal,” a regional steel supplier explained to Metal Expert.
Saudi Arabia, one of the largest project markets in GCC, will cut its budget by $13.3 billion in 2020, which is around 5% of overall expenditure. The national oil and gas giant Saudi Aramco is planning to reduce capital spending for this year to between $25 billion and $30 billion versus $32.8 billion in 2019, according to the official information. The Saudi Contractors Authority expects a 20-40% decline in project awards in the Kingdom over 2020.
The UAE, which is among key consuming markets as well, is suffering from slowing demand amid the lack of construction activity in the country. On top of that, the overcapacity in the longs segment is stiffening competition among producers, creating an unhealthy environment in the segment. “Q1 was in line of expectation. However, Q2 will be challenging: consumption drops roughly by 20% in the first months,” a domestic long steel producer said.
For Iran, the current situation with COVID-19 has only aggravated snowballing challenges. Economic recession, the US sanctions, oil price collapse, numerous financial and logistic limitations, insufficient local demand are only a small part of the problems the Islamic Republic has to face. In such conditions, Iranian steel producers started the current Persian year (March 21, 2020 – March 20, 2021) at the sad note, cutting output of almost all products in the first month (ends April 20). In particular, finished steel production lost 8% of the volumes, coming to 1.53 million t. “The domestic consumption will be on the low side, this is why it is vital to export as much as possible, and explore new markets as well, to be able to survive under such challenging market conditions,” an Iranian source mentioned.
The situation in North Africa leaves much to be desired, too. The key regional market Egypt suspended issuing building permits in some areas for six months amid the pandemic challenges. The decision undermined construction activity and deeply concerned steel market players. “This step will cause slowdown in construction and then in rebar demand, for sure,” a local steel supplier said. Algeria, in the meantime, is suffering from low oil prices and trying to find ways to pump up the budget. As a result, construction projects in the country are also under a big threat, even in the housing sector, which is highly dependent on the state. “Construction sites are on standby, so demand is very low. The whole economy is paralyzed and nobody knows when the situation will start to improve,” an Algerian steel market source told Metal Expert.
Under such circumstances, steel export seems to be a rational solution for MENA steel producers. Unfortunately, few suppliers can capitalize on foreign trade – first of all Iran, which has a strong footprint in the global market despite the international blockade. “We do believe that supply will drop and export will be less than in the previous year,” an Iranian trader noted. “China is the only market which provides support in terms of both volume and price. Export is the best option to utilize the excess of steel capacities these days,” he added. However, succeeding in the export segment will be a rather complicated task for newcomers from MENA. “While all countries are already in Asia, most of GCC producers are pioneers. It is rather an exception than a stable trend to see regional origin products in Asia,” an international trader told Metal Expert.