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Regional Expansion Strategy |
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30/08/2007 10:45:51 Going abroad or entering into mergers is not the strategy followed by most of the new projects of the Arab steel industry. Concentration on the regional interior is what draws the new scene of many new projects with which the Arab region is crowded. Perhaps this scene which is clearly drawn through dozens or rather hundreds of new projects and expansions reflects the fact that what we produce is less than what we consume. Therefore, it is a must to concentrate on the place which is still wide enough to accommodate new production projects. As the steel industry, like any other industry, looks for markets. So it is going to the domestic market and not looking for foreign markets, which has made the Arab region one of the most attractive regions for new investments in the steel industry and in other industries as well. This is what is also expressed by directing most of the Arab steel production to the domestic markets and not to the world export markets. It also explains the increasing direct foreign investments in this sector and more clearly translates the expansion strategy of some of the world companies into entering into partnership or acquisition transactions with some of the Arab companies. Today we can see that the largest two steel producing companies in both Algeria and Morocco have entered into partnership or acquisition agreements with the largest two steel companies at the world level which before 2006 were known in the names of Mittal and Arcelor and have become today ,after being merged, one company the production of which amounted to around 117 million tons in 2006. Though our topic is not mergers in the field of this industry, it must be pointed out that the world trend of the steel industry is rapidly going on towards more mergers. Merger and acquisition operations had doubled in 2006 – as referred to by some sources – more than three times the figure they reached in 2004 and 2005 which amounted in each one of these two years to 30 billion dollars, while the volume of the activity which the merger and acquisition operations reached in 2006 amounted to 91 billion dollars. The Arcelor›s acquisition operation by Mittal is the biggest one with a figure amounting to 34 billion dollars. This transaction has made many companies try to strengthen their position as a defensive line to face the temptation of falling into purchasing offers which they would not be wishing or ready for them. In spite of the continuation of the new trend towards more merger operations in the steel industry during the first months of 2007, what has made the Arab steel mills to be away from entering into such operations coming in from beyond the borders and which have not so far made a clear direction inside the borders is that the potentialities of the Arab market is still tempting the local investors and the private capital to enter into setting up projects of a guaranteed return and that the investment opportunities in this industry, despite the presence of risks and challenges imposed by a strong competition from similar industries, still have better chances for success. What strengthens this increasing growth seen by the Arab economies, even in the countries which do not directly depend on oil, is what is reflected in the economic growth rates and the increasing demand for the steel products, in particular the products employed in the construction sector and infrastructure, as the volume of investments allocated for the development of this sector reflects amazing figures which seem to be about the highest figures at the world level. The Arab steel industry has decided, as a substitution for going for mergers, to set up new projects and expand the presently existing production capacities. The available information on the new projects refer to the presence of nearly 97 new projects divided between projects being under implementation for the first time and expansion of existing units. Most of these projects are concentrated in the long products, the number of which has reached about 30 projects. The volume of the production capacities of these projects allocated for the long products which are decided to be implemented within the next five years is estimated to be around 16 million tons, which is a figure representing the volume of the actual volume of production of long products which in 2006 amounted to 16.2 million tons and reflects the total production of the mills set up over more than fifty years. In addition to the new projects of production of long products there are the projects of production of the flat products which will add a new production capacity amounting to 6.5 million tons, meaning that the production capacity of both the long and flat products will get doubled within less than ten years, which will make the growth rate of the Arab steel production one of the highest rates at the world level. The Arab steel industry have decided to grow within its own environment and to get bigger by carrying out expansion in setting up projects which satisfy the needs of the domestic market with possibilities for exporting to the world markets and help increase consumption in some sectors where the consumption volume is still limited, as most of the consumption is now concentrated in the real estate sector and the infrastructure projects. The future growth of consumption and expanding its base should not, however, stop at the boundaries of the real estate sector, but it should so extend as to cover other sectors. There are some people who are afraid of the risks of having an overcapacity of steel production when the new projects are completed and put into operation, but what weakens such fears is the expansion to be made in the consumption base proceeding from the balance of the consuming sectors and not from the domination of one sector and that the steel industry itself should have a role in locating new steel consuming sectors by producing new products which require setting up new industries. A great many world companies have found in the increasing demand in our domestic markets good opportunities to consolidate their presence by directing some investments for setting up new projects or through entering into partnerships; these are the same opportunities which must be seized and taken into consideration by the Arab companies through consolidating their presence, not only by the motivation of seeking opportunities to invest the capitals but also by the motivation of satisfying the points of demand wherever there are markets of a great capacity of product accommodation. This translates the attempt of some Arab companies into looking out for extensions beyond the boundaries of their geographical existence. Focusing on the fact that this expansion in setting up this industry through spreading and not though concentration constitutes or must constitute one of the principal expansion fronts of the Arab steel industry, which must be one of the priorities of the future expansions. |
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