Economic Update

Published 12 Sep 2011

With a recent milestone achieved in aluminium production and major expansions planned in the steel sector, Oman is becoming an increasingly prominent player in the global metals industry.

On August 20, three years after launching operations, Sohar Aluminium’s smelter produced its one millionth tonne of aluminium – an achievement the firm’s executives have said demonstrates the plant’s value for the Sultanate. The company is looking to secure additional natural gas supplies from the government to support efforts to expand its production facility. With an additional $3bn in investment, it hopes to upgrade the 1000-MW power plant that supplies energy to the smelter and to double capacity, bringing total production to 720,000 tonnes per year.

Meanwhile, Jindal Steel & Power, the Indian firm that owns the Jindal Shadeed Iron & Steel plant in Sohar, has plans to expand its facilities in Oman, to be paid for with most of a recently acquired $475m loan. Jindal bought Shadeed Iron & Steel for $464m last year and officially took over operations in July 2010.

Shortly after assuming ownership, Jindal commissioned the construction of a direct reduction unit to produce hot briquetted iron and hot direct reduced iron, both of which result from a specialised chemical process that directly reduces iron ore. The unit, which has a capacity of around 1.5m tonnes per year, began operations in December 2010, well ahead of the March 31, 2011 target date. The facility commenced exports of hot briquetted iron in late February.

The company’s further expansion plans are set to be carried out in two phases and include the construction of a steel melting shop, rolling mills to increase downstream production and a direct reduced iron module with a capacity of 2m tonnes per year. The company has not mentioned what the individual phases will cost, though D K Saraogi, the executive president of Jindal Shadeed, has said the company hopes to increase capacity to 4m tonnes per year by 2015-16.

According to Saraogi, Oman presents a number of opportunities for steel and iron firms, particularly given the recently increased construction of transportation infrastructure. “Oman has investment potential because there are infrastructure development plans under way, including railways, roads, real estate and ports,” Saraogi told OBG. “The construction of railway lines throughout the GCC is a major factor boosting the iron and steel segments.”

Saraogi added that the expansion of the steel segment would be “vital” for the growth and development of the Sultanate’s economy. “This reduces imbalances in the region and creates employment, thereby increasing per capita income for sustainable growth,” he said, adding that there is still significant room for expansion in the industry. “Per capita consumption of steel in Oman is very low compared to other GCC countries, but steel consumption is bound to increase further once the developmental activities start. Hence investment in steel projects in this region is very important.”

The expected growth of segments like steel and aluminium will also create employment opportunities for Omanis as the government presses on with its “Omanisation” policy, which requires that 35% of employees in industrial firms be Omani.

At the inauguration ceremony for Jindal Shadeed’s integrated steel complex at the Port of Sohar in May, Jindal Group’s managing director, Naveen Jindal, emphasised the company’s commitment to employing locals. “We take Omanisation seriously and there will be more and more job prospects for Omanis in our company as we grow,” he said. “With our integrated steel complex, many ancillary companies are likely to come, with more and more job prospects for local people.”

Sohar Aluminium has been an industry leader in complying with the policy, with an Omanisation rate of 73% in early 2011, well above the quota. In April the firm announced its intention to boost the rate to 85% by 2015. The company’s CEO, Henk Pauw, told local media that it intended to “provide quality and long-term career development opportunities for Omani citizens”. Sohar Aluminium has set aside nearly $2m for local training initiatives in 2011, including programmes in technology and management.

With a variety of infrastructure development projects set to begin in the coming years, expansion in the metals industry seems certain. The continued collaboration between foreign expertise and local talent is sure to be a winning combination, presenting opportunities for both investors and local jobseekers.