Market Opportunities in Saudi Arabia and Qatar

Market opportunities in Saudi Arabia and Qatar

Metal Bulletin’s 16th Middle-East Iron & Steel Conference 2012

10 December 2012, Dubai (UAE)

Market opportunities in Saudi Arabia and Qatar

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Market opportunities in Saudi Arabia and Qatar

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Market opportunities in Saudi Arabia and Qatar – Contents

Contents

• Global and regional context

• Projects and outlook for steel demand in Saudi Arabia and Qatar

• Other long term opportunities in MENA region

• Conclusions

Market opportunities in Saudi Arabia and Qatar – Global and Regional Context

Steel industry profitability has fallen sharply in 2012, though is still much higher than before the China boom

EBITDA (bln US$)

160

Top-70 publicly listed mills (65% of global 140 steel output) 140

120 118 100 98 91 87 80 84 83

60 59

40 45 42 36 29 20 28 22

0 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12e

Source: SteelConsult International

Market opportunities in Saudi Arabia and Qatar – Global and Regional Context

The MENA steel industry has held up well, despite the turmoil in the region, and is actually one of the fastest growing regions in terms of steel production

Crude steel output, index (May 2008 = 100) 140 140

120 120

100 100

80 80

60 60

40 40

China & India 20 EU, NAFTA & Japan 20 World MENA 0 0 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O 2008 2009 2010 2011 2012

PMIs show sustained growth in UAE and Saudi Arabia, performing well compared to China and India

(Manufacturing) PMI Index

50 China Manufacturing PMI India Manufacturing PMI

45 UAE PMI Saudi Arabia PMI PMI balance point

40 J F M A M J J A S O N D J F M A M J J A S O N 2011 2012

Source: Markit, HSBC

Market opportunities in Saudi Arabia and Qatar – Global and Regional Context

YTD oil production of the major producers in the Gulf, and average annual oil prices, are both at record ever levels in 2012 YTD…

Oil production (‘000 barrels per day) Oil price (US$/barrel)

25,000 120 Saudi Arabia UAE Kuwait Iraq Jan-Oct. YTD, Qatar oil price annualized 100 20,000

15,000

10,000

5,000 20

0 0 2006 2007 2008 2009 2010 2011 2012YTD*

As a result, oil based revenues of the Gulf countries are expected to reach record ever levels in 2012

Petroleum exports (bn US$)

800 Jan-Oct. YTD, Qatar annualized 700 Iraq Kuwait UAE 600 Saudi Arabia

500

400

300

200

100

0 2006 2007 2008 2009 2010 2011 2012YTD*

Owing to increased government expenditure, including on public utilities and affordable housing, the MENA countries can expect some of the strongest growth in steel demand in the coming years

Government expenditure (bn US$)

350 Qatar Iraq

300 Kuwait UAE

Saudi Arabia 250

200

150

100

0 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f 2017f

Contents

• Global and regional context

• Projects and outlook for steel demand in Saudi Arabia and Qatar

• Other long term opportunities in MENA region

• Conclusions

Market opportunities in Saudi Arabia and Qatar – Projects and steel demand

Saudi Arabia is developing 4 entire new economic cities

Focus: Logistics, agribusiness, mineral, Focus: Knowledge based industry with construction materials an Islamic focus and services Size: 156 million square meters Size: 4.8 million square meters Investment size: US$ 8 billion Investment size: US$ 7 billion Population: 80,000 people Population: 200,000 people

Focus: Energy and labour intensive industries Size: 100 million square meters Investment size: US$ 27 billion Population: 250,000 people

Focus: Port and logistics, light industry

and services Size: 168 million square meters Investment size: US$ 27 billion Population: 2,000,000 people

Source: SAGIA

Market opportunities in Saudi Arabia and Qatar – Projects and steel demand

Construction industry value in Saudi Arabia is forecast to increase at a firm (real) growth rate of 4.5% per year in the coming decade

Construction industry value Saudi Arabia (bn US$)

20 CAGR: 8.1% (nominal), 4.5% (real)

0 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f

Qatar plans to build 9 new stadiums for the World Cup and renovate 3

1. Lusail Iconic Stadium 2. Shamal Stadium 3. Al-khor Stadium 4. Al-Wakrah Stadium Capacity: 86,250 Capacity: 45,120 Capacity: 45,330 Capacity: 45,120 Value: US$ 662 mn Value: US$ 251 mn Value: US$ 251 mn Value: US$ 286 mn

5. Al-RayyanStadium 6. Doha Port Stadium 7. Education City Stadium 8. Qatar University Stadium Capacity: 44,740 Capacity: 44,950 Capacity: 45,350 Capacity: 43,520 Value: US$ 135 mn Value: US$ 202 mn Value: US$ 287 mn Value: US$ 300 mn

9. Al-Gharafa Stadium 10. Sports City Stadium 11. Khalifa International 12. Umm Salal Stadium Capacity: 44,740 Capacity: 45,330 Stadium Capacity: 45,120 Value: US$ 135 mn Value: US$ 251 mn Capacity: 68,030 Value: US$ 251 mn Value: US$ 71 mn

Source: Commercial Bank Capital, MEED

Market opportunities in Saudi Arabia and Qatar – Projects and steel demand

The World Cup may well require some 3mln tonnes or more of extra steel over the next ten years, or 300k tonnes per year or more on average

• The World Cup 2014 and Olympics 2016 in Brazil are estimated to require 8mln tonnes of extra steel over a ten year period*.

• It is estimated that the Olympics 2008 in Beijing required at least 3mln tonnes of steel for construction of the stadiums, the Olympic Village and transportation infrastructure*.

• The World Cup 2018 in Russia is expected to generate 2.5-3mln tonnes of steel demand**.

• As an indication, above references would suggest the World Cup in Qatar may well require at least 3mln tonnes of steel demand, or some 300k tonnes per year, or more, on average until 2022.

• While the new stadiums will be the eyecatchers of the World Cup, they may consume ‘only’ some 100-200ktonnes of steel in total. It is the supporting infrastructure that will consume the bulk of the extra steel requirements.

Source: Brazilian Steel Institute*, Evraz**, SteelConsult

Market opportunities in Saudi Arabia and Qatar – Projects and steel demand

Construction spending in Qatar will be supported by the World Cup preparations as early as 2013, but the main boost is expected to come from 2017 onwards

Construction industry value (bn US$)

20 Qatar 18

12 Construction activity growth, and hence steel consumption, expected 10 to pick up from 2013… …But increasing more significantly 8 between 2017 and 2022

6 CAGR: 8.5% (nominal), 4.8% (real) CAGR: 14% (nominal), 9.5% (real)

0 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f

Contents

• Global and regional context

• Projects and outlook for steel demand in Saudi Arabia and Qatar

• Other long term opportunities in MENA region

• Conclusions

Market opportunities in Saudi Arabia and Qatar – Other long term opportunities in MENA region

Longer term opportunity #1: Iraq has become a steel market of significance again in the last three years, though so far requirements are mostly imported, 90% of which from Turkey and Ukraine. The country has a huge potential for further steel consumption growth. • Iraq has seen steel demand grow fast since 2007, Finished steel consumption, Iraq (m tonnes) but at 2.1m tonnes of steel in 2011, or 68kg/head,

12 Iraq’s consumption is still embryonic. • If the country stabilizes further, its huge, dormant potential steel market could gradually be unlocked: 10 – The country has 31m inhabitants; – Decades of underinvestment and violence 8 Potential have left the country in ruins. Huge market in investments need to be made for the future 6 (re)building of infrastructure, industry, utilities and housing; – At 115bn barrels, it holds the world’s 3rd largest 4 reserves of oil, after KSA and Iran. • Over US$200bn of existing and future capital 2 projects are planned in Iraq, and the country is expected to see major contracting activity in the next

0 5-10 years. '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 ff • In a stable situation, we estimate steel consumption in Iraq could grow to at least 10m tpy.

Longer term opportunity #2: The GCC has an opportunity for 7 medium sized car plants in Saudi Arabia and/or the UAE, or ~2m tpy of auto steel

Car imports/sales GCC (‘000 units)

2,500 Other GCC UAE Saudi Arabia 2,000

1,500

1,000

500

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Contents

• Global and regional context

• Projects and outlook for steel demand in Saudi Arabia and Qatar

• Other long term opportunities in MENA region

• Conclusions

Market opportunities in Saudi Arabia and Qatar – Conclusions

Conclusions (1)

• While global steel markets remain under pressure, and parts of the MENA region continue to face political instability, steel output and demand in the MENA region have held up relatively well during the last 2 years.

• Moreover, oil production in the GCC has increased, as have oil prices, and government revenues have risen to record levels.

• Vast construction investments in Saudi Arabia, incl. four new cities, will lead to (real) growth of 4.5% per annum on average between 2012 and 2021, and associated growth in steel requirements.

• Prospects are also favourable in Qatar, where the National Vision 2030 and preparations for the 2022 World Cup are expected to drive construction activity and steel consumption. Growth is expected to pick up from 2013 onwards, but accelerate especially from 2017.

• The hosting of the World Cup may well add another 3mln tonnes or more to Qatar’s steel demand over the next 10 years, or 300k tonnes (or more) per year on average, most of which will be required for supporting infrastructure.

Market opportunities in Saudi Arabia and Qatar – Conclusions

Conclusions (2)

• In the longer term, we see two other potential key drivers of growth in the region:

• The further development of Iraq could add another 8m tonnes of steel or more to regional demand;

• The GCC region is importing some 1.5m vehicles per year, growing to over 2m units by 2017, presenting an opportunity for diversification and increase of local steel consumption, esp. in higher quality flat steels.

Market opportunities in Saudi Arabia and Qatar

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