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New Saudi industry minister calls for steel investment Saudi Arabia’s steel industry needs to make sure it has the right product mix to cater for the kingdom’s economic expansion, says newly-appointed Saudi industry and mineral resources minister Bandar bin Ibrahim Alkhorayef. The country currently has a “… very narrow base” of production, which should be expanded to added- value products, he said at the first Saudi International Iron & Steel Conference in Riyadh attended by Kallanish. The government is ready to help steel companies face the challenges of local content procurement, energy prices and protection from imports, he observed. It is also ready to meet foreign investors to discuss potential projects. “We shall give as much support to new investment as we can,” Alkhorayef commented at the event on Tuesday. “We are committed to make sure we offer very competitive (gas) prices compared to different countries in the region,” he said. Gas prices for a given industry will depend on how much value that industry adds to the Saudi economy, he added. Two important authorities have been created in Saudi Arabia. One is the local content authority that will ensure a greater deal of local input materials are used in production, while the other is the foreign trade authority that will help protect local producers. The latter “… shows that the government is really keen on abiding by World Trade Organisation rules, but at the same time we don’t want people to take advantage of our market,” Alkhorayef concluded. Saudi should utilise oil & gas advantage: Rocca Oil and gas give Saudi Arabia an extraordinary competitive advantage, but the kingdom needs to take various steps to ensure this is exploited to its benefit, says Tenaris chairman and chief executive Paolo Rocca. “The challenge is to build around this competitive advantage on the value chain of industrial development,” Rocca said at the first Saudi International Iron & Steel Conference in Riyadh attended by Kallanish. Saudi consumes around 2 million tonnes/year of pipe. In developed countries industry produces 30% of overall GDP, whereas in Saudi it is 12-13%. This shows the Saudi value chain has a very high potential for development. It should be “… state policy” to develop industry, Rocca commented. Global steel overcapacity is denting the willingness of investors to develop new capacity, including in Saudi Arabia. The kingdom has an opportunity during its G20 presidency to focus on tackling overcapacity and promote local content, he continued. Saudi should consider an anti-dumping duty to protect local industry from unfair competition, as well as some programmes for local content. This, in combination with the in-Kingdom Total Value Add (IKTVA) programme, would attract value-added investment in the supply chain. There are three main things Saudi authorities can do to encourage foreign steel investors, according to Rocca. The first is to establish regulations for local content use, such as in the new USMCA trade agreement which stipulates 75% of automotive content be made in North America. The Gulf Cooperation Council should also adopt an integrated approach, allowing Saudi producers to raise exports to other countries in the bloc. Kuwait, for example, could increase its pipe intake from the kingdom. Lastly, there must be support for education to encourage young Saudi engineers to go into the steel industry. “You see a country that has human resources – this is important from the point of view of investment,” Rocca concluded. 203

Sabic Mauritania JV to ship ore by 2024 Sabic’s iron ore mining joint venture in Mauritania should carry out its first shipment by 2024, according to Sabic chairman Abdualziz Saleh Aljarbou. The Saudi steelmaker operates the Takamul JV in partnership with Société Nationale Industrielle et Minière (SNIM). The project will ultimately produce iron ore pellet. Exploration at the Atomai site in Zouerate began in 2013, while the feasibility study started in 2016. The initial study suggested reserves of over 1.7 billion tonnes of iron ore. The JV will decrease the impact on Saudi Iron & Steel Company (Hadeed) of fluctuating raw materials prices. This year, for example, raw materialise prices have risen much faster than finished product prices, Aljarbou observed at the first Saudi International Iron & Steel Conference in Riyadh attended by Kallanish. “There is a (price) disparity there,” he said, adding the only way to overcome this besides innovation into technology is to secure raw materials and the supply of gas. Although global economic growth has slowed today, the Saudi economy will be given impetus by Vision 2030. Sabic has “…a big role to enable investors to capture opportunities,” Aljarbou commented at Tuesday’s meeting. The firm creates an “…ecosystem” to facilitate industrial development. “We believe 5% growth in demand of steel products will take place over the next 10-15 years,” he said. “This is an opportunity and we hope to be a leader in this.” Moreover, according to Aljarbou, action should be taken to protect against imports. Saudi Arabia to develop engineering steel production Saudi Arabia is at the threshold of developing national engineering and other special steel grades production for commercial and strategic applications. It has established the development of the engineering steel sector as one of the priority directions for its steel industry. National production of special steel grades is becoming necessary for the kingdom's ship building, automobile, oil and gas and defence applications. So said Anjan Mukherjee, Ordnance Factories Board senior consultant at the inaugural Saudi Steel and Iron Conference supported by Kallanish in Riyadh on Tuesday. “A series of consultations with the Saudi government and an extensive survey of the existing capacities concluded that only few additional facilities for upgrades are needed in order to begin producing high strength micro-alloyed steel grades for commercial and defence industry applications,” Mukherjee said. These not only include manufacturing, but also new testing facilities, he continued. RK Goyal, managing director of Kalyani Steels, conceded that \"… high-end engineering steels need to be produced locally in order to support strategic industries such as railways, defence and aerospace.\" This will require creation of ultra-modern research and development centres, using the expertise of fellow experienced engineering steel producing countries, such as India, he added. The detailed technological solutions for upgrading the plants based on the completed survey will be presented to the relevant decision makers in due course, Mukherjee concluded. Downstream steel development is a priority says Aramco Moving the Saudi Arabian steel industry further downstream is a part of national strategy, says Ahmad Al-Sa'adi, Aramco's senior vice president for technical services. He was addressing the audience at the inaugural Saudi Steel and Iron Conference supported by Kallanish in Riyadh on Tuesday. Aramco spends around SAR 1 billion ($267 million) each year on anti-corrosion developments alone, working with various global companies in creating know-how, and using its many years in oil exploration field. The increasing need for localisation of some of the services in 2010 has enabled 204

creation of Saudi Arabia’s ‘in-Kingdom Total Value Add’ (Iktva) programme. This aims to increase the local content of Aramco’s supply chain to 70% by 2021. Critical in delivering oil companies' commitment and ability to deliver oil and gas, an interdependent relationship with the steel industry remains a vital component of exploration companies' evolution, Al- Sa'adi says. It is important for the company to have a supply chain close to main operations, an aim that is leading Aramco to invest in various steel-related research and development enterprises globally. As part of this strategy, Aramco has signed 15 memoranda of understanding valued at over $34 billion with companies from eight countries spanning three continents. Al-Sa'adi points out that increasing raw materials costs and the current lack of domestic supply of highly technological steel products in Saudi Arabia is holding back the potential of the Saudi export- orientated economy. This makes localisation a high priority, he adds. Saudi accelerates mineral development, ore deposits support steelmakers Saudi Arabia has 869 million tonnes of discovered iron ore resources that could be developed to secure raw materials for the country’s steelmakers, according to Saudi Geological Survey (SGS) president Hussain Alotaibi. The largest deposit is Wadi Sawawin, located northwest of Madinah, which possesses 429mt of 40% Fe hematite, magnetite and limonite ore. Southwest of Riyadh, the Jabal Idsas deposit contains 306mt of 19-55% Fe hematite and limonite ore. The Wadi Wassat and Wadi Fatima deposits, meanwhile, possess 84mt and 50mt respectively of 47% Fe and 45% Fe ore. The Wadi Sawawin deposit is expected to host a 5.4 million tonnes/year iron ore pelletising plant, a joint venture between Ironside Resources/Juniper Capital Partners and National Mining Company (see Kallanish passim). Besides iron ore, Saudi has considerable deposits of copper, zinc, bauxite, niobium, silica, limestone and phosphate, among others. SGS is implementing an “…accelerated exploration programme” to “…optimise more than 40 years of geological and exploration works” in the Kingdom, Alotaibi observed at the first Saudi International Iron & Steel Conference in Riyadh. The government has allocated $21 billion of spending into mining up to 2035 to help diversify the kingdom’s economy away from oil. Around $500 billion of investment – foreign and local – is expected into Saudi mining in this time. The Regional Geosciences Program, to which SAR 2.3 billion ($613 million) has been earmarked, will provide detailed geological information to assist exploration companies in selecting mining areas. SGS is about to sign EPC contracts with various firms to begin implementing this programme. In order to speed up the exploration of minerals and analysis of data, Saudi authorities plan to use artificial intelligence, which is expected to reduce the discovery cycle by 90%. “If you want to do it the old traditional way it’s going to take you 50 years – we cannot wait,” Alotaibi said at this week’s conference supported by Kallanish. Hadeed seeks captive ore to alleviate margin pressure Saudi Iron & Steel Company (Hadeed) is securing captive iron ore and optimising costs. This is in order to mitigate the impact of raw materials and energy prices rising far in excess of steel prices, according to Hadeed president Salah Al Ansari. Feedstock is a major component of steelmaking cost. “It is a business that we need to make profitable in order to make it sustainable,” Al Ansari said at the first Saudi International Iron & Steel Conference in Riyadh. To produce 5.8 million tonnes/year of crude steel Hadeed consumes 8m t/y of iron ore, 1mt of scrap, 193MMscf of natural gas and 1.03GW of power. The firm’s three rebar mills can produce up to a combined 2.6m t/y, while two wire rod mills can produce up to 1.2m t/y. Hot rolled, cold rolled, 205

galvanized and pre-painted coil capacities are 1.6m t/y, 175,000 t/y, 245,000 t/y and 100,000 t/y respectively. “We enjoyed cheap feedstock in the beginning – later on this started increasing and the margins started squeezing,” Al Ansari said of Hadeed’s cost base development at this week’s conference supported by Kallanish. From Hadeed’s commissioning in 1984 to 2019 raw materials prices have risen by 175% and energy prices by 150%, while steel product sales prices rose only 50%. Saudi iron ore deposits have the potential to supply steelmakers but have so far remained undeveloped. Hadeed parent company Sabic has therefore invested in Mauritania-based iron ore miner Takamul, a joint venture with Société Nationale Industrielle et Minière (SNIM). This is expected to ship the first ore cargo to Hadeed by 2024 (see Kallanish passim). To bridge the cost gap further, Hadeed has implemented cost optimisation programmes, such as the reduced consumption of graphite electrodes, whose prices rose drastically in 2017 and 2018. Various energy reduction schemes have also been implemented. “That’s only to, let us say, bridge the gap of iron ore increasing – that’s what pushed us to do all of this,” Al Ansari observed. If iron ore-steel spreads continue as they are, however, steelmakers need to put serious thought into backward integration to secure captive iron ore supply, he concluded. Bahrain Steel expects output growth, Fe content improvement Bahrain Steel expects iron ore pellet sales to reach 9.8 million tonnes in 2018, up 23% on-year, thereby cementing its performance recovery after low sales in 2014-2017, says sales and marketing manager Stig Nordlund. From 2020 the firm will increase the maximum Fe content in pellet production to 67.5% from the current 66.7%, Nordlund said at the first Saudi International Iron & Steel Conference in Riyadh. Higher-quality pellet production will be made available by the procurement of iron ore from Anglo American’s Minas-Rio mine, which is ramping up output following its restart in late 2018. Earlier this year Bahrain Steel signed a $15 billion agreement for the procurement of 8 million wet metric tons/year of iron ore pellet feed from Anglo American over 20 years (see Kallanish passim). This resolved earlier commercial disputes between the firms. Over 65% of Bahrain Steel’s iron ore requirement comes from Brazil, but the firm has diversified its sources to also include Chile, Canada, Turkey and Sweden in case production in Brazil is disrupted. Pellet sales at the 12m t/y plant recovered to 8mt in 2018 from only 4.2mt in 2015. The firm has also started selling pellet to the US. The direct reduced iron/electric arc furnace steelmaking route is gaining more traction as it produces only one third of the CO₂ emissions produced by the integrated blast furnace route. China is investing a lot into new EAF capacity, although the majority of this will use scrap feedstock, Nordlund observed at the event supported by Kallanish. The share of DR-grade pellet in the seaborne pellet market is expected to rise to 41% in 2027 from 36% in 2018. DRI-based steelmakers in the Middle East, excluding Iran, have seen reduced margins due to high iron ore prices. DRI output therefore fell -4-10% on-year in Saudi Arabia, United Arab Emirates and Qatar in January-July 2019. “DRI production is expected to recover in the Middle Eastern steel markets in coming quarters which should boost DRI output and DR pellet demand,” Nordlund concluded. 206

SIDF eyes local iron ore mining investment support The Saudi Industrial Development Fund (SIDF) wants to support the localisation of the industrial supply chain in Saudi Arabia, according to its chief executive, Ibrahim Almojel. This includes investments into securing raw materials for steelmakers. SIDF’s capital has increased to SAR 105 billion ($28 billion). To date it has supported the Saudi steel sector with $14.3 billion of loans. As well as for new projects, SIDF offers financing for expansion, modernisation and relocation. Under the National Industrial Development and Logistics Program (NIDLP), launched earlier this year, SIDF is focusing on supporting four key sectors: mining, industry, energy and logistics. The programme aims to transform Saudi Arabia into an industrial powerhouse and logistic hub. The fund is actively seeking cooperation with potential investors, both local and foreign, Almojel said at the first Saudi International Iron & Steel Conference in Riyadh. “We changed from focusing on manufacturing only to include mining… energy and industry, so we support now the whole dimension,” Almojel observed at last week’s meeting supported by Kallanish. SIDF has also diversified the financial products it offers to industry. It has created customized programmes, such as Tanafusiya to support competitiveness and Tawteen to maximise local content, which will direct industry towards achieving the goals of Vision 2030. India's GCC steel participation to grow: JSPL MD India's exports of steel products to Saudi Arabia and the wider Gulf Cooperation Council, and Indian investors’ participation in investment projects in the region will continue to grow in the coming years. So said Jindal Steel & Power (JSPL) managing director Vidya S. Sharma at the first Saudi International Iron and Steel conference in Riyadh last week. \"India is a natural supplier to the GCC,” he observed at the event supported by Kallanish. “The industry will definitely grow and there will be more exports to the Middle East.” He underlined the relationship between India's ambitious target to produce 300 million tonnes/year of crude steel by 2030, and Saudi Arabia's Vision 2030 strategy. Sharma said Indian and Saudi investors should come together in order to realise Saudi Arabia's ambitious plan to increase its crude steel production and launch production of flat and special steel products. The latter are currently imported. Saudi’s pipe and defence industries are especially sensitive to the lack of relevant domestic steel products output. \"Jindal wants to grow in downstream products in the Middle East and Southeast Asia,\" Sharma. The abundance of cheap natural gas in Saudi is a boon to electric arc furnace steelmakers, singling out the EAF route as the most appropriate for the region, he added. MENA needs flats but may lack conditions: SIIS19 Middle East and North Africa construction steel demand is likely to be slow to recover, but future manufacturing expansion will require value-added steel products not produced in the region. So said participants at last week’s Saudi International Iron & Steel Conference (SIIS19) in Riyadh. Opinions differed, however, over how suitable the region is for investments into this new steelmaking capacity. In the Middle East and North Africa, “…contrary to our expectations, the recovery of steel demand was delayed because construction projects have dried up,” Nae Hee Han Director, Economic Affairs and Chief Economist at World Steel Association, said at the event supported by Kallanish. While a recovery is forecast for North Africa in 2020, the Gulf Cooperation Council will remain sluggish due to low infrastructure project activity. Turkey will continue to see a contraction in construction activity in 2020. “We are not very optimistic about (a Turkish recovery) because most of the problems facing Turkey are more structural than cyclical,” she observed. 207

Worldsteel economics committee chairman Saeed Al Remeithi said GCC steel demand has fallen over -20% in the last five years to 19 million tonnes/year because activity in construction, the main consumer, has contracted. The region needs to rebalance towards flat products, he explained. National Committee for Steel Industry (NCSI) vice chairman Mohammed Al Jabr said Saudi Arabian mills are “…suffering,” operating at only 30-40% capacity because of the slower construction sector. “It is very challenging to look to the future,” he said. However, Vision 2030 projects give steel suppliers encouragement for the next decade, he added. There is an immediate need for localised production of thin-gauge hot rolled coil and plate not currently produced in the GCC, Al Jabr observed. No progress has been made on the proposed plate mill in Saudi, and the NCSI would like to sit down with the investors to move the project along, he said. World Steel Dynamics managing partner Peter Marcus, however, offered a more negative view for the Middle East steel market. The region has a “…devastating… unbelievably negative” list of problems, he said. These include the eventual return of Iranian steel exports once sanctions abate, the unpredictable price of oil, no regional import protection, and the lack of economies of scale to invest into new mega steel plants. Moreover, the region has no downstream steel market and gas is in short supply, meaning electricity costs have increased. Al Jabr disagreed with the negative view on investment into new flat steelmaking capacity. The GCC has an ambitious plan to develop its downstream industry and will not want to import all of its requirement, he explained. The global benchmark capacity for a plate mill to ensure breakeven is 1 million tonnes/year, he said. Marcus responded by saying that thanks to new technology steel is in a new age of lower capital investment per tonne of steel produced, making today a great opportunity for investment. He also said the current HRC export pricing “…death spiral” is not yet at the bottom. The HRC price in late December 2019 could be “…just as catastrophic and terrible as it was at the end of 2015,” he observed. However, a recovery is expected in early 2020 due in part to reduced steel production and the beginning of re-stocking. HRC pricing “…death spirals” are here to stay and may happen twice per decade. India's national 2030 steel target remains on course India is on course to reach or even exceed its target crude steelmaking capacity of 300 million tonnes by 2030, provided its per capita domestic steel consumption touches 200kg. This is according to Bhaskar Chaterjee, secretary general and executive head of the Indian Steel Association, speaking to delegates at the Kallanish-supported First Saudi International Iron and Steel conference in Riyadh last week. He was referring to the target in the context of the country’s National Steel Policy (NSP) 2017. Slated to cross 100mt in 2019, India's steel consumption will need to double in the next decade, translating to a compound annual growth rate of about 7%, in order to justify the increase. Although it may take slightly longer than forecasted to achieve this, the country is on track to become a $5 trillion economy in the next five years. Its low base of 70kg per capita of steel consumption implies ample growth opportunities, Chaterjee says. Having grown by 9.1% on-year in 2018, India's steel consumption is potentially set to increase across all major segments to 160kg per person by 2030. 300mt of installed crude steel capacity working at 85% utilisation translates into 255mt of crude steel and 230mt of finished products, with 24mt exported and 206mt consumed domestically. The NSP envisages to eliminate imports completely, according to this scenario. India has oscillated between being a net importer and a net exporter of finished steel in the last 10-12 years. Assuming this trend continues and India remains a net exporter of around 2-3mt of steel annually, then output of 230mt of crude steel and 270mt steelmaking capacity is justifiable, he says. 208

The Indian government has allocated around $18.3 billion in the next five years for infrastructure investment. This includes both vertical and horizontal construction, using more steel in bridge building, and moving to producing new types of steel for its strategic industries. With its ample iron ore supply, it opens up a vista of opportunities for quality steel producers, but \"… ultimately, the market will determine what it considers adequate in terms of steelmaking capacity and the export-import numbers,\" Chaterjee concludes. Metinvest aims for export growth to GCC Ukrainian miner and steelmaker Metinvest is committed to growing its presence in the GCC area, as it launches new products in demand in the region. This is according to Victor Vukusic, general manager of the company's Gulf branch, speaking to delegates at the First Saudi International iron and Steel conference in Riyadh last week, attended by Kallanish. The company is about to launch commercial production of hot rolled coil at its new rolling mill-1700 at the Mariupol-based Ilyich iron and steel mill. This will enable Metinvest to supply heavier, thin-gauge coil that is in high demand both in Saudi Arabia and in the wider GCC. Additionally, Metinvest will start producing DR-pellet in the second quarter of 2020, which it also intends to export to the region's steelmakers. Ukraine already exports hot rolled plate and coil to the region, but even having supplied 5.2 million tonnes of products to MENA in 2018, tonnages have declined considerably in the last five years. The - 13% fall in exports in 2018 is largely caused by the region's increasing self-sufficiency in billet production, used-to-be its main import until 2016, when it fell significantly. Ukrainian steel exports to Saudi Arabia have also decreased significantly. From 730,000t, the majority of which was billet in 2014, to 703,000t in 2015, and 590,000t in 2016, volumes tumbled by a half to 248,000t in 2017, and reduced to 160,000t in 2018. Chinese output, consumption can only go down: MPI China's steel production and consumption can only go down from now on, as overcapacity threatens the profitability and sustainability of the industry. So said China Metallurgical Industry Planning and Research Institute (MPI) president Li Xinchuang at the First Saudi International Iron and Steel conference in Riyadh last week. Having produced 928 million tonnes of crude steel in 2018, China is on track to produce 996mt this year, which would be an all-time record. Output in January-August reached 664mt. \"An open, fair, competitive market where everyone works from the same level,\" is the key to China's billowing steel industry regulation, but it is not easy, Xinchuang said repeatedly at the conference supported by Kallanish. China needs to continue to eliminate capacity in order to control output; however, this is a difficult task, Li Xinchuang observed. Pressed hard by environmental concerns, the government will continue to limit production in the most densely steel-producing regions, such as Hebei. This alone produces more steel than India, the world's second-largest steel producer. The province has significantly increased output this year, but the government is planning to restrict its capacity to around 200 million tonnes/year. 209

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Brief report about media coverage of the First Saudi International Iron and Steel Conference (SIISC) September 16-18, 2019, Riyadh World Steel News published by Metal Expert SIISC 2019: Riyadh leaves doors open to steel business community to industrialise economy 19 September 19 18:34 Saudi Arabia’s Vision 2030 announced several years ago as a massive economic transformation programme is gathering pace and gradually turning from an idea into a practice. A focus on the country’s industrialisation became a key topic of these days with a steel industry being an engine of this process. The National Committee for Steel Industry (NCSI) sees huge business opportunities for the sector due to the current transformation of the Kingdom and gathered steel experts all over the world at sunny and hospitable Riyadh to discuss them during the First Saudi International Iron and Steel Conference (SIISC) held on September 16-18. The event became the first of its kind in Saudi Arabia and the industry in general, hosting 1,156 delegates from different countries. Briefly, the main idea of the conference could be defined as steel is a platform of future development of the Kingdom as it lies at the heart of the progress, Metal Expert learnt. \"A key message of this conference is that the industrial and economy development should be integrated,\" Rayed Abdullah Al-Ajaji, Conference Chairman and President of NCSI, said. Taking into account this concept, the event had a wide support at a governmental level and was organised under auspices of H.E. Bandar bin Ibrahim Alkhorayef, newly appointed Minister of Industry and Mineral Resources. “Definitely, the steel is a very strategic industry that needs to be the part of any economy, which is expanding its industrial platform,” the minister said during the keynote executive panel. The conference covered a wide range of topics both internal and international. A lion's share of informative discussions was dedicated to Saudi Arabia’s economy and the steel market, which is a kind of terra incognita for the global community, including such issues as Saudi Vision 2030 as a driver of the economic growth and investment, steel sector development strategy, raw materials and supply chain, massive construction projects, new end-use sectors for Saudi steel. Moreover, all delegates had a chance to understand a role of the Saudi steel industry in the global context, learn about the MENA and global steel market prospects, Metal Expert hears from the sessions. Briefly, the Saudi Arabia steel sector is currently facing a transition period amid the economic transformation when it should switch from construction-oriented business to engine, which serves the needs of local industries. All steel market players understand the necessity of the diversification to stay afloat amid some global economic headwinds, which is around the corner. “Steel is a major raw 211

material that unlocks at least four of the key National Industrial Strategy priority sectors such as military, automotive, renewables, machinery and equipment,” Fuad Mosa, Vice President for Local Content at SABIC, underlined. A new consumption paradigm will require a new production approach in the steel industry with a focus not only on longs, but other steel products. “Saudi Arabia is a long steel oriented country. Unfortunately, due to lower construction activity for the last few years, all mills, rebar and wire rod, are suffering, working with maybe only 30-40% of their capacity,” Mohammed Al Jabr, Vice Chairman of NCSI, mentioned during the event. At the same time, “there are investment opportunities to develop capacity for flats and other value added steel products, which is not currently been built in Saudi Arabia,” Rayed Abdullah Al-Ajaji added. Apart from stronger integration with the traditional and new downstream sectors, the Kingdom’s steel industry is aware of a necessity of a backward integration and a sustainable raw materials supply, especially during the times when raw material prices have increased far quicker than steel prices. Saudi Arabia is ready to invest both locally and abroad to secure feedstock. “Our total iron ore resources to this date accounted for 869 million t… But Wadi Sawawin, Wadi Fatima, Jabal Idsas iron ore deposits need more studies to make them economic feasible,” Hussain Alotaibi, President of Saudi Geological Survey, stated. “[Iron ore] feedstock is the major item of all production cost. As we know that we need to make steel industry profitable and sustainable,” Salah Al Ansari, President of Hadeed SABIC, said during his speech. Plenty raw material supply will help local steel mills to increase their competitiveness, while some adjustments are also needed in terms of energy costs. “We need to be able to compete with countries with a competitive cost base such as India and Ukraine. To do this the crucial thing is that Saudi Arabia needs to provide natural gas supply and competitive energy prices for industry,” Rayed Abdullah Al- Ajaji mentioned during the concluding remarks. Another important point to support the industry in the future is that Saudi Arabia should focus on the trade measures to protect local production and quality standards to prevent substandard steel. “Saudi Arabia is an open market and we are suffering from some pressure due to unfair competition both locally and abroad. We need some measures to tackle this,” one of the delegates told Metal Expert. While foreign suppliers opined that in any case there is room for cooperation with Saudi Arabia if it is framed by level-playing field. “Ukraine is an exporter, but we are an exporter to support you, which does not change drastically supply and focus on market needs to not compete with local producers,” said Victor Vukusic, General Manager of Metinvest’s Gulf Branch. Although in general the conference speakers and delegates see many promising aspects for the Saudi steel sector, they are mainly related to a longer term. At the same time, for a short term outlook, all of them are rather cautious due to slow steel consumption in the MENA region and GCC as its essential part. “We see a contraction of steel demand in GCC, Iran and North Africa. The recovery is foreseen in North Africa in 2020,” Nae Hee Han, Director of Economic Studies and Statistics at worldsteel, said. “It was a very nice event, but unfortunately, it has not brought us some positive market news. GCC steel market is under pressure and today we need a miracle to spur it,” a delegate told Metal Expert. 212

Taking into account very informative discussions and a positive attitude to the event among the government bodies, steelmakers, sponsors, speakers and guests, NSCI decided to continue organising such meetings in the future to support the implementation of the steel development strategy. “One of the recommendations is that we should do this conference on an annual basis. And it is a start of it,” Rayed Abdullah Al-Ajaji, Conference Chairman and President of NCSI, announced during the event wrap-up. “It was a very long and thorny way to successful event and now we are bearing the fruits,” Ahmed Nazal, Organising Manager, said. 213

SIISC 2019: Hadeed SABIC determined to accomplish iron ore project in Mauritania 18 September 19 19:35 The permanent concerns over raw material supply as the precondition for sustainable operations forced many steelmakers, DRI-based first of all, to dust off their iron ore projects. Saudi Arabia’s Hadeed SABIC, which had this idea well ahead of the supply imbalance, also intends to complete its iron ore assets in Mauritania and get free access to pellets. Hadeed SABIC does not leave its attempts to develop iron ore deposits in northern Mauritania under the brand Mauritania Saudi Mining and Steel Company (TAKAMUL). “SABIC is going seriously in order to have its backward integration,” Salah Al Ansari, president of Hadeed, said during the First Saudi Iron and Steel Conference held on September 16-18 in Riyadh. Although the development of own iron ore projects seems promising, it requires a lot of time to obtain numerous approvals, licenses and tests. “The project was launched in 2012 and feasibility study and banking study have already been there. As already been mentioned, hopefully, we will have the first shipment in 2024,” Salah Al Ansari explained. With the start of shipments, the producer will be able to considerably increase the sustainability of its business operations and get advantages in terms of production costs. “The key elements that make products of our steel division successful: the raw material availability and sustainability of supply as it takes up 50% of the finished product cost,” said Abdulaziz Aljarbou, CEO of SABIC, during the first day of the conference. Taking into account the production capacity of Hadeed SABIC at 5.8 million tpy, the company needs 8 million t of pellets and 1 million t of scrap annually, according to the official information. 214

Saudi Arabia strengthens focus on localization, including steel sector 18 September 19 18:23 Taking into account the announced focus on industrialization, Saudi Arabia is targeting to widely implement its localization strategy, according to the comments made by delegates on the sidelines of the First Saudi International Iron and Steel Conference (SIISC) held on September 16-18 in Riyadh. The steel sector will be one of the main drivers of such developments. Aiming to speed up industrial developments and prevent unfair competition in the market, Saudi Arabia established two new entities: Local Content and Government Procurement Commission as well as Foreign Affairs under the governance of the Ministry of Industry and Minerals Resources. “I can assure that we are working on the promotion of the local content, especially in the steel industry. The aim is to make a very clear and very transparent programme to protect interest both in the domestic and overseas markets. This programme is working in the favour of the local players,” underlined Bandar bin Ibrahim Alkhorayef, minister of industry and mineral resources during SIISC. The promotion of the local content is one of the key objectives of Saudi Arabia, especially given the country’s growing attractiveness to investors. “The potential of Saudi Arabia is enormous. Very important to develop domestic and local content, especially in the wake of Aramco announcements,” said Paolo Rocca, chairman and CEO of TenarisSaudiSteelPipes. Despite the prominent prospects for the local industry, there are some challenges with preserving a friendly environment for the domestic producers, steel suppliers first of all. “Are we doing enough in terms of protection of the steel industry in Saudi Arabia? The USA, China and other countries have huge production and consumption volume, yet they face unfair competition. In Saudi Arabia it is our main goal to defence producers,” said Abdulaziz Aljarbou, CEO of SABIC, during SIISC. 215

SIISC 2019: Future of steel investments in GCC belongs to flats 18 September 19 13:21 After a slowdown in steel consumption in the GCC region, which eventually led to overcapacity in the long steel segment, local mills are seeking ways to cope with the current challenges. In such conditions, they link their future with the flat steel business, as there is only one HRC supplier in the region – Saudi Arabia’s Hadeed SABIC, while all the GCC countries import big amounts of these products. Despite challenges with the demand, the GCC countries feel a lack of hot-rolled flat steel product supply amid the insufficient HRC capacity and the absence of plate production. “The steel industry in the GCC is not balanced. We have overcapacity in long products with 85-90% of our steel going to construction. But the construction is depressed now, which has an immediate impact on the steel industry,” Saeed Ghumran Al Remeithi, CEO of Emirates Steel Industries, said during the First Saudi International Iron and Steel Conference (SIISC) held on September 16-18 in Riyadh. “Flats is what we look forward to,” he added. Thus, while the GCC does not know where to sell long steel, it heavily relies on flat steel import to meet the demand from several re-rollers and the downstream sector. In 2018, the region purchased at least 1.8 million t of steel under HS code 7208, which is one of the most popular for HRC trading, according to International Trade Center data. The UAE and Saudi Arabia were the key buyers with respective shares of 49% and 31%, Metal Expert learnt. During January-July 2019, the GCC imported more than 1 million t of the mentioned products. Taking into account such distorted market structure, future investments in the steel sector are likely to be more beneficial if they belong to flats. “We should look at the flats very soon. Local companies are well aware that there is a lot of imports of flats to Saudi Arabia and the GCC. Therefore, as the steel committee, we gave the recommendation to expand in flat steel products,” Mohammed Al Jabr, vice chairman of the National Committee for Steel Industry, mentioned during the event. “Everybody knows that the downstream industry needs thin gauges HRC as we have no such products from the existing producer [Hadeed SABIC]. We also need a plate mill as the government has announced the project for shipbuilding,” he pointed out. An evidence of the good understanding of the problem is the intention of Hadeed to expand the product portfolio with thin HRC required for the local downstream industry, Metal Expert learnt. The same messages are coming even from equipment suppliers for metallurgical industry as they have faced a drop in orders for rebar rolling mill in the GCC amid unfavourable market situation and overcapacity. “Today, I would not recommend to anyone to install new long steel production lines. Even the government does not want to approve such expansion projects, clearly understanding the aftermath,” a representative of a major machinery company told Metal Expert on the sidelines of the conference. While the GCC market players are already aware of the importance of the flats segment development, one of the questionable points is the speed of the industrial development, which will define the 216

feasibility and terms of investments in hot-rolled coils and plates. “The steel industry needs a strategy, which will be based on the requirements of downstream sector,” Mohammed Al Jabr said. During various periods of time, some GCC companies had in hands expansion projects in flat steel. It can be said about such well-known producers as Hadeed SABIC, Emirates Steel Industries, Solb Steel. Moreover, one of the newcomers in the steel business, Omani-based Moon Iron and Steel, also voiced some plans for flats, but the company should first commission a 1.2 million t steelmaking complex and rebar production, preliminarily scheduled for this year. 217

SIISC 2019: Saudi Arabia needs to develop value chain to support domestic steel industry 17 September 19 18:42 The rapidly growing hydrocarbon and petrochemical sectors of Saudi Arabia are providing significant opportunities to steelmakers worldwide, particularly pipe manufacturers. Although local producers will be able to take advantages from such developments, they need to adjust their operations to the requirements of the industry and balance the value chain to be competitive. Saudi Arabia has an abundant potential in the hydrocarbon and petrochemical segments, taking up to 54% ($15.8 billion) of the total GCC energy project value awarded in H1 2019, according to BNC Network reports. The promotion and development of the segments challenge local industries, the steel sector first of all. “Oil and gas sector is a clear competitive advantage for Saudi Arabia. The challenge is to build around these competitive advantages the value chain of industrial development,” said Paolo Rocca, chairman and CEO of TenarisSaudiSteelPipes, during The First Saudi International Iron and Steel Conference (SIISC). The pipe plants are thought to be among the critical components in the creation of the needed value chain. “Saudi Arabia consumes up to 2 million t of pipes, including large diameters pipes. Up to 30-40% of the volume is imported. So, this value chain has a big potential for development in the future,” he added. Despite the prominent prospects, domestic steelmakers will have to fight for their place in the sun as they currently are unable to fulfil all the needs of the sectors. “In the developed countries the weight of the domestic industry is 25-30%. In the case of Saudi Arabia, we have around 12-13% of the local content. So, we see a lot of room for improvement,” Paolo Rocca pointed out. The projected steel demand from the maritime industries alone is 400,000 t of plates by 2023, while the total steel demand will reach 1 million t by 2030, Metal Expert learnt. “It is necessary to develop value-added products in order to cover the needs of the energy sector of the Kingdom,” said Abdulaziz Aljarbou, CEO of SABIC, during the event. 218

SIISC 2019: Saudi SABIC focuses on sustainability of business operations 17 September 19 16:45 Amid tightening global protectionism, trade wars and overcapacity issues, steelmakers are deeply concerned with the matter of survival in such challenging conditions. SABIC, one of the biggest industrial conglomerates of Saudi Arabia, is betting on the sustainability of its business operations in the steel sector. SABIC aims to strengthen its competitiveness in the steel market with the main focus on the sustainability of its business operations. “SABIC looks very carefully at the key elements that make products of our steel division successful: the raw material availability and sustainability of supply as it takes up 50% of the finished product cost. Another is innovation, technology and production efficiency and expansion of product portfolio. The combination of these factors is the formula of success in the steel industry,” said Abdulaziz Aljarbou, CEO of SABIC, during The First Saudi International Iron and Steel Conference (SIISC). SABIC has already made some important steps to reach the goal. In particular, in 2012 the company established Mauritania Saudi Mining and Steel Company (TAKAMUL) for iron ore exploration at the Atomai Mines in Zouerate, northern Mauritania. The iron ore reserves of the asset are estimated at 1 billion t. “The project was launched a couple of years ago and hopefully we will have the first shipment in 2024,” he added. Besides, protection from the import inflow to ensure the sustainable growth of the domestic industry remains a highly important question. “The existence of the steel industry in the Kingdom depends on many factors. First of all, it is government support in the form of AD measures, protections, etc. However, the most important thing is cooperation between all representatives of the sector,” Abdulaziz Aljarbou underlined. 219

Additional publications prepared after the conference KSA steel sector looks at tourism development without rose-tinted glasses 10 October 19 19:10 The reboot of the national economy is gaining momentum in Saudi Arabia with the tourism sector being one of the main drivers. Although there is little knowledge and activity in projects’ implementation, the segment attracts worldwide interest from both the investors and steel suppliers. The Saudi Arabian General Investment Authority and the Saudi Commission for Tourism and National Heritage recently signed several agreements with local and international investors to promote the development of the national tourism sector. The aggregated sum is estimated at SAR 100 billion ($26.7 billion; $1 = SAR 3.75). Although full details of the deals have not been disclosed, most of the contracts are related to the support of the entertainment industry. “Tourism has an enormous potential in Saudi Arabia, which is clearly a competitive advantage for the domestic industry,” a delegate of the First Saudi Iron and Steel Conference mentioned. The tourism sector is one of the main drivers in the economic transformation of Saudi Arabia aimed to ease dependence on oil and gas revenue in line with Vision 2030 strategy. The key investments are into the $500 billion NEOM project, Qiddiya entertainment megaproject as well the Red Sea coast development. Despite prominent construction prospects, local steel producers express cautious optimism about developments as most of the projects are still in their early stages. “We are full of hopes but not counting too much. It is a huge leap between expectation and reality. Seeing is believing,” a domestic steel produce 220

NEOM project in progress, but still far from active steel-consuming stage 24 September 19 18:53 The development of large-scale projects remains in focus of Saudi Arabia with the most expensive and ambitious investment being NEOM. Its implementation is expected to contribute to local steel demand, which is lacking confidence, but in a longer term. While the project is moving forward, it is still far from the most active steel-consuming stage. Saudi Arabia recently awarded another contract under its NEOM megaproject. Saudi contractors Tamimi Group and Saudi Arabian Trading and Construction Company will be responsible for the construction of three residential areas to house 30,000 workers. Later, the village will be expanded to serve the needs of 100,000 residents. The agreement was made for ten years, Metal Expert learnt. On the one hand, some progress in large large-scale projects in Saudi Arabia is bringing hope to the steel suppliers, who can see a new business opportunity. “Saudi Arabia has three main investment sights: NEOM, the Red Sea project and Qiddiya. Most of the percentage will be for steel products,” Abdulaziz Aljarbou, CEO of SABIC, mentioned during the First Saudi Iron and Steel Conference held last week in Riyadh. On the other hand, it challenges the domestic steel industry. “It is strategically important to return investments to Saudi Arabia. In terms of ambitious projects, the question is if we are ready to fill the gap in value-added and flat steel products,” another respondent added. The $500 billion NEOM project was officially introduced in October 2017 and is expected to be the world’s first independent special economic zone connecting Saudi Arabia, Jordan and Egypt. The development plan includes a bridge spanning across the Red Sea to Egypt and an urban development of 26,500 sq km. 221

Saudi Arabia strives to develop maritime industries and services 23 September 19 19:25 Being focused on the diversification of the economy and industrialisation, the Kingdom of Saudi Arabia intends to develop the maritime industries and services cluster via the anchor facility at King Salman International Complex. The new sector will provide additional business opportunities for the steel business in the long run. Saudi-based International Maritime Industries (IMI) continues to focus on the development of King Salman International Complex located in Ras Al-Khair on the eastern seaboard of the country, according to the official information. The facility will be the largest in the region; it will be specialize in new build as well as maintenance, repair and overhaul of commercial vessels, platforms, offshore jack- up rigs, and the creation of integrated supply chain, Metal Expert learnt during the First Saudi International Iron and Steel Conference held last week in Riyadh. The complex is scheduled to come on stream in 2023 and will be implemented in several stages. The operations of the new facility will require sizable volumes of steel on a regular basis, first of all plates, pipes, bulb flats, channels, angles, beams. Anticipated demand for steel plate in the maritime industry of Saudi Arabia alone will hit 400,000 t in 2023, with 20% annual growth, IMI states. The key steel-consuming items are ships and rigs, where the total steel in the bill of material accounted for 62% and 33% respectively, including 12% and 6.5% allocated for plates. As a result, the industrial cluster is suggesting the launch of plate production in the future. “The big share of the masterplan, 50% of it, is dedicated to steel plate manufacturing with the upstream integration,” Fathi Al-Saleem, CEO of IMI, told during the Q&A. “The main challenge is that these projects become feasible when the demand is 1 million t on annual basis,” he added. While the initiative of the development of maritime industries and services as well as King Salman International Complex looks quite attractive, it is still in the early phase and requires time to come to reality. “King Salman International Complex is currently under construction. The progress of this huge project is 30%,” Fathi Al-Saleem said. “Have we signed something [for plate mill]? Not yet,” he added. However, IMI is in discussions both with local and international steelmakers. 222



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