The CEO & General Manager of Saudi Steel H.M. Zakaria, who has steered the company from the shoals after taking over at the helm in 2007, is confident that Saudization in his company will reach 50 percent target while becoming a major player in the industry. “Achieving 50 percent Saudization in 40 years wouldn't have been difficult at all, but unfortunately the Saudis have missed or lost a great deal of opportunity to participate in the development of their country's initial infrastructure which would have helped them maintain it easily rather than relying on expatriates. The successful Saudization in Saudi Aramco, SAMA and Banks etc. is a proof that ‘where there's a will there's a way',” Zakaria said in an interview with Saudi Gazette. “When I took-over Saudi Steel's management in early 2007, the company was reeling under huge debt, our parent company (ASB Group) pumped in more than SR250 million, a lot of that investment was used to build steel plants in Sudan, Yemen and Kuwait. These investments neither generated any ‘return on investment' nor ‘return of investment itself'. The entire investment went up into smoke. “One of our Yemen (steel) plant that was recently taken-over by the rebels, has now been released by the Yemen army. Since we have retained Yemen's manufacturing operations and have managed to survive despite tough economical and political situation there, we are keeping a low profile and waiting for the new political leadership's direction, I fully hope that with the help of Saudi Arabia & GCC financial and political support, Yemen will be able to offset her two decades of lost opportunities and losses and may provide great opportunities to it nationals and neighbors,” Zakaria added. Saudi Steel, established in 1993, had five manufacturing sites in four countries (Saudi Arabia, Kuwait, Sudan and Yemen). In February 2007, the company was restructured by Zakaria when he took-over as the CEO; divesting ownership of the subsidiaries in Kuwait and Sudan while retaining the three manufacturing facilities in Saudi Arabia and Yemen. A fourth manufacturing facility (SSP2) was built in Jeddah Industrial City, Phase V in 2008 and fifth one is under construction and will be completed by 2016. Zakaria, while stressing ‘Steel is one of the trickiest industry or business to run' stated there is an old saying that “steel industry is a guaranteed way to lose money'. Steel has a history and tendency of working in extreme cycles” is happy at the way his company is performing. Saudi Steel achieved its Saudization in 2008 but it was not properly documented at the labor office and GOSI (General Organization for Social Insurance) until 2010. Despite meeting the official target of 14% Saudization, the management continued its drive in hiring more Saudis reaching 26% Saudization – almost double than the official requirement that includes 24 female employees. Saudi Steel also set-up technical training school and computer learning school to train and educate Saudis who lack skills and are interested in learning and educating themselves to meet the job market requirements. “Our target (we call it challenge) is to have 40% Saudization by 2016/17,” Zakaria added. “We export our products to all immediate neighboring countries including GCC, Yemen, Sudan, Ethiopia and Djibouti etc. We have recently submitted a huge tender for steel conduits to European country. The possibility and potential to export our products (steel pipes) to Europe and America is huge due to our competitive cost base. “The industries in Saudi Arabia enjoys massive subsidization from the government, for example, industrial land is leased on very low rent almost free, SIDF provides medium and long term loan at 1 -2 percent flat rate, energy or electricity is the cheapest in the world, the labors are on fixed contract and works non-stop for two years without giving you any headache or fear of losing them for a better job or stopping work for any disputes with the management enabling management to plan production schedules for the entire year. “The currency or Saudi Riyals/US Dollar exchange rate is fixed and guaranteed by SAMA, giving a peace of mind to the businessmen otherwise hedging cost and complications of hedging Saudi Riyals would have been an additional cost and burden. But despite providing all above facilities to develop industrial sector in the Kingdom, we failed to employ or provide jobs to Saudi national as per the target/plan,” Zakaria said. “On my first day in the office, I made it clear to all my senior management that I want to break the cycle of dependency on our parent company and want Saudi Steel to be a standalone entity. We will not seek help from our parent company or from its affiliates/subsidiaries (ASB Group has some 30 businesses spread in four continents) but will offer help to them. I first checked the production capacities of the machines and then set the production targets and offered incentives to the production staff. “The first year (2007) production increased from 52,459 tons to 80,150 tons, a 55 percent growth and continued upward trend reaching 100,102 tons in 2008, 143,815 tons in 2009 and 173,106 tons in 2010. The growth cycle broke in 2011 and production was 8% down at 158,077 tons, lower than our initial target of 180,000 tons, the decline continued in 2012, down 1.5% at 155,851 and 1.0% at 153,572 tons in 2013 but it picked up and grew 6.0% in 2014 and the production is set to breach 180,000 tons. “I will share this secret with you for the first time that the growth we experienced at Saudi Steel was partly due the policies the management adopted and strictly implemented and the vacuum that was created by the big steel companies after the 2008 crash that sent almost all of them on defensive positions due to their large inventory exposure while Saudi Steel was fully geared and hungry to fill the vacuum, having new ambitious management and fresh energy, the mantra worked well and is still working. Today, we enjoy utmost trust of our owners, employees, suppliers and customers,” Zakaria said. “We have installed four more tube mills taking total to 8 tube mills. Expanded Metal and C-Channel capacity has been doubled with installation of new machines. The product range (type & size) has been increased to 3 or 4 folds, offering customers a full range of steel products under one roof, locally manufactured by Saudi Steel and imported. We have also installed additional heavy 35 tons overhead cranes to handle heavy coils. Storage area has been increased threefold to accommodate the increased production volumes. Supply chain & logistics were organized to meet the import and supply requirements,” Zakaria expounded, while elaborating on Saudi Steel's success story. Now our Targets/Goals are to be the first choice of customers for their steel products needs; and Saudi Steel continues to succeed because it has earned a solid reputation for integrity, which we are committed to maintaining. Saudi Steel will carry on business honestly and fairly, acting only in ways that reflect well on the Company in strict compliance with all laws and regulations and being part of an industry that produces high carbon, Saudi Steel is committed to protect environment and have planted more than 970 trees around SSP plant in the first six months and have planned to plant 300 more trees in the surrounding areas and will continue its efforts to turn Jeddah Industrial Estate into a green industrial community, Zakaria added. Here are the excerpts: Q: Steel industry in Saudi Arabia is highly import oriented. The steel consumption in the Kingdom reached around 13 million metric tons. How much has your company has been meeting the high steel demand in the Kingdom? A: As per our info and data, steel consumption in the Kingdom peaked 15 million tons in 2014, of which long products (re-bars & structural steel sections) were 70%, flat steel 20% and pipe/tube products 10%. Of the 1.60 billion tons the world produced in 2014, Middle East & Africa manufactured/consumed 85 million tons. Saudi Steel is a typical ERW (Electric Resistance Welded) pipe/tube or hallow structural sections (as commonly known in the US) manufacturer and has a market-share of 15% of this product segment i.e. 105,000 tons (we reckon Kingdom's tubular products market size/capacity is 700,000 tons per annum). Our company works 24X7X365 a year, more than 90% of our products are manufactured on JIT or pre-sell module. JIT, also called lean manufacturing, is a management philosophy focused on how the supply chain fits into the manufacturing process. One of its main principles is to eliminate waste in the supply chain. It is a Japanese management philosophy that has been applied in practice since the early 1970s in many Japanese manufacturing organizations. It was first developed and perfected within the Toyota manufacturing plants by Taiichi Ohno as a means of meeting consumer demands with minimum delays and minimum inventories saving space.
Q: GCC countries' capacities of basic iron and steel products are estimated to be 20 million tons of iron ore pellets, about 2 million tons of sheets and plates, 17 million tons of longs, and about 5 million tons of pipes and tubes. Do you cater to this huge GCC and Arab market also? A: As explained above, your question relates to long products market especially re-bars and wire rods etc. The major players of this product segment are Sabic Hadeed, Al-Rajhi Steel and Tuwairqi Steel etc. My personal estimate of Saudi re-bars and wire rod market size is 10 million tons, structural steel (beams etc.) is 1.0 million tons, flat steel (sheets & plates is 2.50 million tons and tubes/pipes is 1.20 to1.50 million tons (depending on oil & gas projects). Q: Do you think excess supply in China and Europe is going to affect pricing and margins worldwide considering the fact that China holds almost 50% of the entire world's steel production capacity? A: Off-course, excess supply anywhere in any sector will have an impact on prices due to globalization of trade, but it's not just supply that affects prices, demand too has a role to play. At times China, which produces more than 50% of world crude steel or Europe could generate excess steel and dump it to export markets including middle east but a construction boom and demand in the gulf could off-set the impact of pricing, other factors are custom duty protection, port capacity, supply chain and logistics capacity etc. keeps price fluctuations within a narrow band. Also, steel industry has traditionally been owned by the states due to massive employment that it offers, the Western governments have started privatizing this industry in 70s but until 2012, half of the world's 46 top steel companies were state-owned, and they accounted for nearly 40 percent of global production, providing jobs to millions, forcing governments to run them without looking at their performance or balance sheet.
Q: Steel is said to be the core of green economy, being the main material used in delivering renewable energy. Your take on this? A: We form or manufacture all our products through ‘cold forming process' we don't operate or use furnace etc. so we are a minimum carbon emission industry and yet we have planted 1,000 trees around our plant to turn our steel plant into a green industrial park. Q: Tell us about the ISO certification for your company? A: Saudi Steel is an ISO 9001:2008 & former API Spec Q1 & 5L (American Petroleum Institute) and accredited manufacturer of various steel products such as steel pipes, tubes, sheets, corrugated sheets, studs & runners and expanded metal etc. products, supplies to customers throughout the region. We are a policy holder and partner of Euler Hermes for our accounts receivables. Q: You have four manufacturing facilities in Saudi Arabia and Yemen. Are there any expansion plans? A: In addition to increasing our then plant capacity from 389,000 tons in 2007 to 789,000 tons in 2012 at SSP1 & SSP2 plants by adding four more tube mills, one slitting line and several C-Channel and Expanded Metal manufacturing machines and building second plant (SSP2) in 2008 to accommodate the expansion, a third manufacturing facility (SSP3) is under construction in Modon's new industrial area and will be completed by 2016 to cope up with the demand from the local and regional markets. Sky is the limit to fulfill the demand of steel. Though a lot of products that used to be only made of steel has been switched to aluminum and plastic, yet steel's demand is continuously rising, from a mere 28 million tons annual consumption in 1800 to 1,600 million tons or 1.60 billion tons today and growing. Imagine had we not found steel substitutes like Aluminum and Plastics etc., steel reserves would have exhausted longtime ago. Automobile, packaging and white-goods industry is fast switching towards aluminum and plastics as both has vast reserves (55 billion tons of proven Bauxite reserves are in the world), enough for centuries to come. Saudi Steel has been successful on an expansion/growth plan since early 2007. The market for building materials in general and steel in particular has always been strong since late 90s. Our outlook for 2015 and beyond is a bit conservative with unstable political situation in the region coupled with falling oil prices will make business more competitive. Q: How good is the quality of your steel as compared to the ones produced outside? And how do you monitor quality? A: Saudi Steel Profile Company's Quality Policy is the basis for the long-term profitability and growth of SSP. In the industries we serve, we strive to be every customer's first choice quality supplier. Our organization is focused on our customers. We are committed to satisfying the needs and expectations of our customers and other interested parties, including their economic, social and environmental concerns. Q: What types of steel do you produce? Is it carbon steel or low alloy steel or tool steel? A: ERW (Electric Resistance Welded) steel pipes and tubes are made of low carbon steel and are used in various engineering purposes, fencing, scaffolding, line pipes etc. ERW steel pipes and tube are available in various qualities, wall thicknesses, and diameters of the finished pipes. Our product finds its usage (if galvanized) for agricultural purposes, drinking water for housings, extraction of water, thermal powers, transports, hand pumps for deep boring wells, as a strong protection for cables by telecom department, structural Purposes etc. High performance ERW steel pipes and tubing possess high strength corrosion resistance, high deformability, high strength and high toughness. We are among the leading manufacturers and suppliers of ERW pipes/tubes in the region. Q: Do you have integrated mill or mini mill? A: As I mentioned above, our main product, Electric Resistance Welded (ERW) pipe is manufactured by cold-forming a sheet or slitted strip of steel into a cylindrical shape. Current is then passed between the two edges of the steel to heat the steel to a point at which the edges are forced together to form a bond without the use of welding filler material. Initially this manufacturing process used low frequency A.C. current to heat the edges. This low frequency process was used from the 1920s until 1970. In 1970, the low frequency process was superseded by a high frequency ERW process that produced a higher quality weld. Over time, the welds of low frequency ERW pipe was found to be susceptible to selective seam corrosion, hook cracks, and inadequate bonding of the seams, so low frequency ERW is no longer used to manufacture pipe. The high frequency process is still being used to manufacture pipe for use in new pipeline construction.
