Steel demand declines 50% with exit of illegal construction workers

The correction campaign to rectify the status of foreign workers in the Kingdom had its implications on the demand for steel, salesmen and distributors in the domestic steel sector say.
They said demand for steel declined by 50 percent following the departure of thousands of illegal workers out of the country at a time when the Kingdom is witnessing giant development and construction projects worth billions of riyals.
Demand for steel will be stagnant next year once the correction period ends, to be met with an increase in the local production by local plants that already embarked on opening new lines of production.
According to NCB Construction Contracts Index, the value of contracts for May 2013 dropped to SR9.8 billion. In the lead of these contracts are the residential units and transportation.
Contracts for June recorded a rise of SR20.8 billion, leading the rise is the multipurpose real estate sector and roads.
Despite these facts, steel prices did not record any rise during the last three years due to the recent competitive environment, and the lack of monopolization engulfing the sector.
Ayman Qusybat, a steel distributor, said the steel market is stable. He added that prices are in the normal range, and the imported Turkish steel closed the gap of shortages of the commodity. He pointed out that local steel plants evolved and increased production. And with the three new plants entering the sector, the whole landscape seems stable."
He noted that Saudi Basic Industries Corp. (SABIC) maintained its prices without introducing and discounts, despite the fierce completion by other plants.
Demand for steel is strong in view of the government projects. "The departure of illegal foreign workers affected the construction businesses, so we expect a crisis to happen earlier next year," said Qusybat.
Referring to the options available to address the effects of the exit of labor on steel orders, he said: "One should target new recruitment firms that the Ministry of Labor licensed earlier, although costs will increase on contractors."
He added that the daily wages for a worker was between SR600 and SR800, but the new range of wages will amount to SR1,500. "This is indeed a game-changing factor," he added.
The NCB Construction Contracts Index for contracts of the first half of 2013 are worth SR102.7 billion, while contracts for April were worth SR23 billion, with the government, oil and gas sectors in the lead.