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Saudi Arabia eliminates import duty on steel rebar to ease shortage
A rise in steel prices and a shortage in steel rebar supplies have prompted Saudi’s government to lift the import duty on steel rebar, thus avoiding delays in completion of construction projects.
April 13, 2010 5:26 by kippreport
Saudi Arabia has taken a major step by lifting the import duty on steel rebar to alleviate a shortage in the Kingdom as prices rise for rebar feedstock.
“There are no import duties on rebar now because of a shortage in Saudi (Arabia) and we want to encourage traders to ship the steel here,” a Ministry of Trade and Industry spokesman said on Monday. “This is a time when prices are high and traders don’t want to pay duties on shipments,” he added.
“Over the last few weeks steel prices rose due to strong demand in the local Saudi market. The government’s decision to lift the steel import duty will cut costs and increase imports in order to meet the growing demand in the local market,” said Said Al-Shaikh, chief economist at the Jeddah-based National Commercial Bank.
As Saudi Arabia embarks on massive construction projects, demand for steel is expected to rise this year by eight percent with consumption nearing 6.4 million tons, Saudi Basic Industries Corp. (SABIC), which accounts for about half of domestic production capacity with its Hadeed subsidiary, said recently.
“The abolition of the import tariff is an important step toward bridging the gap between suppliers and end users and terminate the policy of hoarding by distributors and contractors. This practice distorts prices and the supply of steel products,” John Sfakianakis, general manager and chief economist at Banque Saudi Fransi, said.
“Prices should be adjusted downward as supply forces come into play in the coming weeks. The shortage caused panic and a short and unjustified price hike, which is now being addressed. Also, the measure should help producers and distributors import at a more constant base eliminating shortages and hoarding middlemen. All in all, the construction sector should benefit from an expected adjustment in the supply chain of steel products,” Sfakianakis added.
The rise in steel prices and increases in other input costs have raised fears over the viability of some projects. The Kingdom wants to prevent a shortage from delaying construction projects, the spokesman said.
Saudi Arabia is spending billions of dollars on infrastructure as it looks to diversify its economy away from oil. State spending has provided a buffer against the global economic downturn. Saudi Arabia, one of the largest steel producers in the region, has the capacity to manufacture 8.4 million tons per year, according to industry association Arab Steel.
The removal of import duty reverses a five percent tariff the Saudi government imposed in January and comes after a rise in the price of steel billet in the Black Sea region. Steel billet producers in the Black Sea region are among the biggest suppliers to the Gulf region. Billet is used to manufacture the construction material rebar. Rising prices for billet have pushed rebar prices in the Gulf to around $800 per ton from $550 earlier this year, traders said.
The government is also looking at ways to prevent traders stockpiling the metal, the spokesman said. It plans to inspect steel warehouses, he added. “We don’t want to have an artificial shortage of steel because traders are hoarding and selling later when prices are higher,” he said.
Huge demand due to the construction boom in the Kingdom coupled with a price increase on the global market and the shortage of supply are the major factors that resulted in the current soaring prices for steel products.