Nov, 7th, 2009

Oct, 12th, 2009

Leveraging on Sohar’s competitiveness

Oman competitiveness toto
create a steel cluster in Oman
Sohar
There is a significant market opportunity for MENA steel producers: a
supply-demand gap of 30 Mt of finished steel

MENA supply vs. demand analysis

Mt of finished steel

Unmet demand is likely to be

supplied by steel imports,
unless additional capacity is
developed 33
80

83

208
175
128
92

2008 Capacity Expansions 2015f Gap (imports) 2015f New Demand 2008 Demand
Capacity Demand

Supply (installed capacity) Demand

* Including GCC, North Africa, Turkey, Iran, Pakistan and India.

Source: IISI, ISSB, MB 2020 Mena report, Vale
 Oman is in a steel intensive phase of economic development and is
about to double its steel consumption
Steel consumption per capita vs. GDP
Thousand tones
Oman 2008
Oman 2015 Oman steel consumption
2008
1.200 South Korea
Thousand tones
Base case
1.000 UAE Optimistic scenario
Steel Kg per capita

800
(finished steel)

600 Japan

400 Saudi Arabia EU-27

China USA
Oman 2000
200
1000
Egypt Brazil 500
India
0
0 10.000 20.000 30.000 40.000 50.000 60.000
2006 2008 2015 (Potential)
GDP per capita (US$)
Depends on industrial
I II III developments, for example: steel
Low steel consumption Steel intensive can be consumed internally and
Steel reposition
• Agriculture • Construction / indirectly exported in the form of
infrastructure • Services
• Labor-intensive consumer goods
manufactures • Vehicles / consumer goods • High tech

Sources: EIU, IISI, Vale

Oman has the potential to play an important role in the
steelmaking value chain
Service centers Service centers
Raw Material Primary iron Steel making Rolling mill Heavy applications Manufacturing

Jindal Shadeed Sharq steel Sharq steel Al Jazeera Steel

• End product (sewer

• Cut / shaping
covers, shipping hull,
• Welding
etc.)
Overseas
Plates • Cut / shaping
logistics
• Welding • End product (home
• Steel sheets appliances, vehicle
Flats: • Tin plate bodies, steel cans,
Slab • Checkered steel etc.)
HRC / CRC* sheet
• End products
• Cut / Shaping (construction
• Welding structures lattices,
etc.)
DR pellets Direct Rebar
• End product
reduction • Cut / Shaping
(Construction
iron (DRI) • Welding
structures, rails, etc)
Sections
Longs:
•Wires
Bloom / billet • Cut / Shaping
•Coils / dampers
• Welding
•Electrodes
Wire Rod
NON EXHAUSTIVE

•Seamless tubes
 Competitiveness in today’s environment requires flexibility and
innovation

• Flexibility in approach:
– Partnerships
– Integration across the value chain
– Synergies

• Flexibility in production through traditional measures such as lean

management

• Innovation through the application of new technology to maximise efficiency

and production

Sources: The Boston Consulting Group

Going downstream in the value chain adds value to the steel
products
Value addition through the value chain
Prices for the equivalent to 1 Mt of steel
product (US$ / t , 2007 basis)
> 3000

858

702
558

327

135

Raw Material Primary iron Steel making

Rolling mill Service centers Service centers
(Semi-finished (Heavy applications) (Manufacturing)
(Pellets) (DRI) steel)
(finished steel)

Source: Steel industry McKinsey and Vale's experts on Steel division

 In the steelmaking value chain, job generation is concentrated in the
downstream

Job generation in steelmaking value chain

Job generation (number of direct jobs / million tons produced) per phase

Cumulative job generation cumulative (number of job generated / million 1713

tons along the value chain) 1.713

1.213
1213

782

500
395 371 400

169 217
67 72

1 2 3 4 5 6
Raw Material Primary iron Service centers Service centers
Steelmaking Rolling
(Pellets) (DRI) (Heavy applications) (manufacturing)
*

Source: McKinsey and Vale's experts from Steel division, team analysis
 Once scale is achieved, and there is a market opportunity, downstream
should be a natural development
Sohar position in
the value chain
Local
footprint

Create, utilize
“Harvest times”

Attract, promote
“Sowing times”

Global
Iron ore / mining Logistics up to DRI / Metallics Semi & Finished Service centers Service centers
footprint steelmaking steel (long / flat) (Heavy (Manufacturing)
aplications)
Typical scale
(Mt) > 100 Mt > 40 Mt 3 – 5 Mt 3 – 5 Mt 0.5 - 1 Mt 0.1 – 0.5 Mt

Note: Average values for each phase in the direct reduction / electric furnace production route
Source: Vale, Clarksons, Metal Bulletin, team analysis
Sohar has all success factors to develop a steel cluster and offers a
good investment climate, tax benefits and incentives in Sohar SEZ

Upstream

Access to raw material Sohar is a Pellets hub, part of Vale's world class global supply
chain

Competitive logistics for Sohar provides economies of scale to bulk material logistics
bulk material allowing the usage of large size vessels

Low energy / power All gas & utilities infrastructure available

costs

Exports are a platform for scale generation and combined with

Scale Oman domestic market provides scale for upstream
development

Land availability Sohar has available industrial land at a competitive price

Sohar has all success factors to develop a steel cluster and offers a
good investment climate, tax benefits and incentives in Sohar SEZ

Downstream

Access to consuming Proximity and strategic geographic position allows potential

markets downstream producers to reach MENA´s market

Access to competitive Depends on upstream production scale

upstream production

Competitive logistics for Sohar has a port with full distribution capabilities,
interconnection with roads and a railway project potentially
distribution linking it to Abu Dhabi

Low energy / power / All gas & utilities infrastructure available

labor costs Oman has the lowest labor cost between GCC countries

Land availability Sohar has available industrial land at a competitive price

Oman has invested US$ 12 billion and is moving towards the
establishment of a competitive steel cluster in Sohar
Actions already taken

US$ 12 billion invested on the development of Sohar Industrial

Competive bulk Port
logistics
Expertise provided to Sohar Industrial Port (Rotterdam port)

Access to raw Attracting a world class iron ore supplier (VALE)

material Establishment of a “virtual mine” in Sohar

Access to Distribution infrastructure in place in the Port of Sohar

consuming • Containers terminal
markets • Road interconnection

Already sustainable investments in general education and

Labour engineering schools

Source: Mckinsey
Conclusions

• Steel is a platform for diversification and economic development

– Several countries like Japan, South Korea, Taiwan, Brazil and China, among
others, established a competitive steel production platform to support their
industrial development

• Gaining competitiveness requires flexibility and innovation through:

– Synergies and integration across the value chain
– Application of new technologies to increase production

• There is a market window of opportunity in MENA that can leverage, through

exports, the necessary scale to support a competitive steel cluster in Sohar
– Many regions have gas availability, but do not have competitive logistics
– No other region, besides Oman has the combination of raw material and logistics