Steel industry sources in Saudi Arabia expect the prices of construction steel in the local market to rise substantially in September or October. Different sources contacted separately by Mesteel have agreed that such a price hike would most likely range between $40 and $50 per ton ex-works.

The Ministry of Commerce and Industry controls steel prices in the kingdom, which are periodically reviewed and adjusted to reflect changes in the local and regional markets. Local production and consumption, as well as imports, are overwhelmingly dominated by construction steel; mainly rebars and wire rods, which are subject to more stringent control than flat steel products, as they are considered as a vital commodity for the country’s economic development.

Current prices in the domestic market for locally produced steel range at $745-$760 per ton delivered Riyadh, for rebars (base price for diameter 16mm) and $780-$790 per ton for wire rod. These prices have generally remained unchanged for the past six months.

In the retail market, the ceiling sales price for rebars is SR 2950 ($786) per ton. This leaves stockists with - what they claim - a too narrow profit margin of 3-4% only. They ask therefore also to raise the existing ceiling price or abandon the present 5% import duty.

“Our production cost has markedly increased, largely due to a steady surge in the prices of iron ore and other raw material in the region over the past few months. An amended price that accounts for the increased cost is long overdue,” said a senior official in a major Saudi steel mill, who spoke to Mesteel on condition of anonymity. He added that steel producers and traders have been discussing the price issue with the Ministry of Commerce and Industry, and that he expected “an increase of not less than $40 per ton” likely to be announced in the second half of September, indicating that $50 was a more appropriate margin.

Another senior company official, who also asked not to be identified, said $40 was a reasonable increase, and though he did not attach a timeframe to the official price announcement he added that it was likely to be made before year end.

He said that he did not expect the corrected prices to impact demand, adding that demand for construction steel has never been so strong from all three market segments; government, mega-projects and individual consumers. He explained that traders had kept low stocks in anticipation of the usual slump in market activity in summer, but a serious shortage was avoided as producers and traders were able to act in time to maintain a minimum level of supplies in the “best ever summer market witnessed in the kingdom.” In august the demand has slowed down however drastically due to Ramadan and hot summer period.

Saudi mills have generally been running to full production capacity, with demand-fuelled expansion plans in various stages of development or execution to raise Saudi Arabia’s current steel output, and increase Saudi mills’ input into the local market which is dominated by imported steel.

The Saudi steel market remains upbeat, with demand likely to gain momentum and witness steady growth. The kingdom was least affected by the 2008 global financial crisis and its aftermath, with a 6.5 percent growth in GDP forecast in 2011, and an estimated $400 billion remains targeted for spending on major infrastructure and investment projects over the next five years.

It is not yet clear how the expected hike in steel prices would affect imported steel, which is subject to a five percent import tax, and usually sells cheaper than locally produced steel which is more in demand for large projects.