National KSA steel champion will bring synergies and opportunities

02 November 2023 3 min. read

The creation of a national champion in Saudi Arabia’s steel industry will unlock a range of mega synergies and opportunities, write Kearney experts Igor Hulak, Konstantin Lyakhov and Artem Botinov.

As was recently publicly announced, the Public Investment Fund (PIF) is going to acquire from Sabic their fully owned steel manufacturing affiliate, Hadeed. At the same time, Hadeed will take over Rajhi Steel from Rajhi Invest through an exchange of new Hadeed shares.

These multibillion-dollar transactions between PIF, Sabic and Al Rajhi Invest will create a Saudi national champion in the steel industry, by combining the world-class steel assets and industry experience of Hadeed and Rajhi Steel together with deep financial and value creation expertise of PIF with its other portfolio companies.

Igor Hulak, Konstantin Lyakhov and Artem Botinov - Kearney

The steel industry is a strategic sector for the Kingdom to grow and further develop in line with Vision 2030 aspirations, as it serves as an enabler to other sectors. The steel industry is vital to enabling downstream development of other sectors (e.g. construction, automotive, renewables, aerospace) by providing critical products and materials along the value chain and thus stimulating the manufacturing industry.

Today, close to 75% of Saudi Arabia’s steel production capacity focuses on rebar and wire rod, which are heavily used in construction, while products like hot and cold rolled coils, plates, tinplate, and round billets are mainly imported. Thus, Saudi Arabia will need to develop new steel production capabilities to meet the increasing demand for from other sectors of economy.

The new steel giant will benefit from multiple synergies and advantages which can be envisioned, like:

  • Commercial – through a more balanced portfolio of long and flat products and geographic locations close to key national economic developments (like Jeddah, Riyadh, Al Jubail), with potential to further invest into creation of new products (eg. UTG, Tin plate) to support future automotive or aerospace and defense industries.
  • Efficiency – not only through potential cost optimization but also leveraging current PIF JV with Maaden – Manara Minerals for access to secure and cost competitive iron ore.
  • Local content leadership driven by significant Saudization rates as compared to other local EAF producers.
  • Decarbonization opportunity driven by potential access to green sources of energy developed by PIF.

The new steel champion of PIF will position itself strongly among the 50 largest steel producers across the globe and more importantly among some of the five largest players in the MENA region.

Moreover, it will not only unlock a vast set of national aspirations under Vision 2030 but will also play an important role in supporting portfolio companies of PIF across various sectors: from security of steel supply sources for its construction activities in PIF’s giga-projects (Neom, Red Sea, etc.), to providing competitive and innovative steel solutions for automotive, maritime, and other investments of the fund.

This transaction will definitely send the right type of signals to other potential investors in further downstream opportunities in the National Industrial Strategy focus sectors, that the Kingdom continues building a robust and competitive steel ecosystem in nowadays, dynamically re-configuring global supply chains.

The realization of Vision 2030 targets is bringing interesting and exciting opportunities in the metals and mining sector in Saudi Arabia which we all are set to be the spectators of in the near future with Hadeed and Rajhi steel being only the beginning.

About the authors: Igor Hulak is a partner at Kearney in the Middle East, where Konstantin Lyakhov is a partner and Artem Botinov a principal. Kearney is a global strategy and management consulting firm.