In demand: Raising steel output in line with infrastructure development plans

As Algeria’s economy has picked up again in recent years, the country has had difficulties meeting the growing demand for steel and iron, particularly in light of large-scale state-led plans for infrastructure development. To address this problem, in mid-2011 the government pledged to invest millions of euros over five years to boost domestic steel production. The establishment of new steel facilities will mainly be driven by state-owned companies, but private investors will also benefit. The investment drive should have a positive impact on the broader economy as well, translating into lower costs for projects undertaken as part of the nation’s programme to overhaul infrastructure, transport and housing. In the long term, steel exports to countries in North Africa and the Middle East are also planned. In 2011 long rebar products accounted for more than half of steel consumption in the country. Other products include tube (around 20%), flats (about 15%) and wire rod (about 10%), according to Michel Cassou, chief marketing officer of ArcelorMittal Annaba, the Algerian subsidiary of steel giant ArcelorMittal. During 2011 some of the group’s steel re-rollers had to be halted due to high scrap and billet costs, as the prevailing market price for steel gave little reason to import billet to roll and sell as rebar.

PRODUCTION LEVELS: World Steel Association estimates put Algeria’s total production in 2011 at 440,000 tonnes, and according to data from the Algerian National Statistics Office the country’s iron and steel output continued to grow strongly into 2012, with an increase of 10.1% during the first quarter. This jump is among the highest in the world, with global steel production growing by just 0.6% year-on-year on average due to the slowdown in demand from China and economic volatility in Europe. After peaking at 1.28m tonnes in 2007, Algeria’s steel production fell in successive years to 646,000 tonnes in 2008 and 543,000 tonnes in 2009, before increasing again to 688,000 tonnes in 2010. The shortfall had to be cushioned by imports of steel and iron, which in 2011 accounted for 4% of total imports, rising to 17.3% in April 2012. Steel consumption in 2012 is estimated at around 4m tonnes, well above the current level of domestic production.

With large-scale plans for infrastructure development in the works, such as extending the nation’s railway network – some 2000 km of projects are under way, while studies are being conducted for a further 5000 km of potential railway (see Transport chapter) – the demand for steel and iron is expected to continue rising in the future.

Global steel giant ArcelorMittal is currently the country’s only producer. The firm recently announced plans to double its crude steel output in Algeria to 1.4m tonnes per year by 2014. Until local steel production meets domestic demand, the country will continue to need to import steel, largely from Europe. In first-half 2012, 756,000 tonnes of steel was imported from trading partner Italy, making Algeria Italy’s largest customer for steel. Algeria imports around €7.8bn worth of iron and steel, accounting for some 20% of the country’s total imports. Import duties have been high and in order to make imports more attractive in the future, valued-added tax on imports of steel billets will be reduced from 17% to 7%, with this taking effect from the beginning of 2013.

INCREASING CAPACITY: In April 2012 ArcelorMittal Annaba signed an agreement with Banque Extérieure d’Algérie to assist the steelmaker, which had been having financial problems, as well as to gradually boost production to 1.4m tonnes of steel per year from just over 1m tonnes currently. Details regarding the deal have not been made available, but according to media reports, negotiations centred on a credit line of around €150m. ArcelorMittal operates the largest steel plant in North Africa, which is located near Annaba and produces hot- and cold-rolled coils and sheets, hot-dipped galvanised products, tin plates, wire rod, rebar and seamless tubes.

ArcelorMittal Annaba was formed under a joint venture between ArcelorMittal and Entreprise Nationale de Sidérurgie (SIDER), Algeria’s largest non-hydrocarbons industrial enterprise. SIDER holds 30% of the shares in the partnership, with Arcelor owning the remaining 70% through an Algerian subsidiary. A global producer, ArcelorMittal operates in 60 countries and employs over 260,000 people.

At the beginning of 2012, local newspapers reported that ArcelorMittal might have to close its Algerian subsidiary Annaba due to difficulties in paying off its debt. Debt had reached €92.46m, and Banque Extérieure d’Algérie had declined earlier requests for a loan of €154.11m. The director-general of ArcelorMittal Annaba, Vincent Le Goïc, had confirmed that he had to go to court to file an application regarding the firm’s inability to pay the debt. Ahmad Ouyahia, Algeria’s prime minister at the time, stated that his government would intervene in case of a bankruptcy of the firm, which employs some 7000 people in Algeria. The Algerian government has previously owned the factory before it was sold to ArcelorMittal in 2001. Government officials confirmed that an agreement had been reached with ArcelorMittal to provide the company with a cash injection of €38.52m. According to the prime minister, the government was willing to pay 30% of that amount, with the remainder to be covered by the company.

The sintering plant should resume operations by 2013, which will allow the facility to meet its target of 1.4m tonnes per year. The company intends to commission a direct reduction iron module in 2014 or 2015 to increase production capacity. Most of the production will be aimed at the domestic market, and few additional details have been released. ArcelorMittal Annaba is equipped with, among others, two sintering plants (3.57m tonnes), coke batteries (1.2m tonnes), two blast furnaces (2.1m tonnes in total) and a steel-making complex (1.45m tonnes).

INVESTMENT FROM QATAR: Opportunities in Algeria’s steel industry have also generated interest further afield, with Industries Qatar announcing in May 2012 that it plans to invest in a new steel plant with a capacity of up to 5m tonnes per year. The plant will cost €900m and is scheduled to open by 2015. A memorandum of understanding was signed between Mohamed Benmeradi, the minister of industry, and Yousef Hussain Kamal, Qatari minister of finance, in Algiers in July 2012, following the formation of a joint venture between the two countries earlier. “We can say that the countdown for the launch of the factory and the production of its first piece of steel has begun,” Kamal told local media. The joint venture will follow the 51:49 investment rule, with Qatar Steel, a subsidiary of Industries Qatar, as the foreign partner holding 49% and Algerian state-owned company SIDER holding the 51% majority.

The steel mill will be built in the industrial zone of Bellara near Jijel in eastern Algeria, some 360 km from the capital. The overall investment in the joint venture is €2.45bn and the new plant will eventually have an annual production capacity of 5m tonnes of steel. The plant will produce 2.5m tonnes of long steel in the first phase, while expansion work will boost production to 5m tonnes of long, flat and special steel in the second phase. The steel will be used to supply the country’s growing rail industry, in particular. The two parties are preparing a preliminary study to determine all technical aspects of the project.

The Middle East and North Africa region has above-average per capita steel consumption of 240 kg due to its relatively small population and the massive investments being made in infrastructure and tourism, according to business research and consulting firm Frost & Sullivan, and the region should become one of the most important centres for iron and steel production over the next 5-10 years, despite only contributing 2% of global crude steel output (27.4m tonnes) in 2010.

As Algeria moves forward with its long-term plans for the development, of infrastructure the demand for steel is only likely to grow, making it an attractive investment destination for foreign steelmakers.

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The Report: Algeria 2012

Industry & Retail chapter from The Report: Algeria 2012

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