Saudi steel faces 7% production cost hike

Power tariffs in Saudi may effect the price of steel production. Photo: Getty

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The cost of steel production could increase by up to seven percent if new proposed power tariffs are imposed by the Saudi Electric Company says a senior member of manufacturing giant Saudi Basic Industries Group (SABIC).

SABIC’s vice president of finance Mutlaq Al-Murished presented the company’s 2010 Q2 results at a press conference on Monday, stating the company profits had risen 177% year on year to SR5b (US$1.3b) as new output came on stream.

SABIC is one of the world’s top six petrochemicals companies and is a market leader in the production of polyethylene, polypropylene and advanced thermoplastics, glycols, methanol, fertilisers and is one of the largest steel producers in the Middle East.

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Last year, Saudi Iron and Steel Company (HADEED), wholly owned by SABIC produced 4.776 million metric tons of steel. HADEED is the Kingdom’s leading steel producer, manufacturing long steel for rebar, wire rod, and girder, and flat steel for oil drums, car parts and household appliances in its Jubail and Jeddah plants. The output covers just over 60 % of the Kingdom's steel demand. Just last month, figures published by Argaam, the Gulf-based financial data service, found that the company had produced 2.242 million tonnes for the first five months of this year. This represents an increase of more than 26% compared to the first five months of 2009, which produced 1.7 million tonnes.

Last month, the Saudi Electric Company announced that its board of directors had decided to increase power tariffs for the government, commercial and industrial sectors starting on July 1. SEC also posted its results for the second quarter of 2010, showing a 50% increase in net profits for the quarter, year on year – up from SR715billion to SR1.07billion.

HADEED signed an agreement with Italian firm Danieli last November to build a steel plant and production line in Jubail. The plant will have an annual output of 1m metric tons of steel billets and bring the company’s annual capacity to 6 million metric tons of steel. The plant will come on line during the second half of 2012.