Oct, 12th, 2009Nov, 7th, 2009

Leveraging on Oman competitiveness to create a steel cluster in Sohar

Oct, 12th, 2009

Leveraging on Sohar’s competitiveness to create a steel cluster in Oman

There is a significant market opportunity for MENA steel producers: a supply-demand gap of 30 Mt of finished steel

MENA supply vs. demand analysis Mt of finished steel

92

175208

128

83

3380

2008 Capacity Expansions 2015fCapacity

Gap (imports) 2015fDemand

New Demand 2008 Demand

* Including GCC, North Africa, Turkey, Iran, Pakistan and India.Source: IISI, ISSB, MB 2020 Mena report, Vale

Supply (installed capacity) Demand

Unmet demand is likely to be supplied by steel imports,

unless additional capacity is developed

China

Egypt

Oman

Saudi Arabia

UAE

BrazilIndia

EU-27USA

Japan

South Korea

0

200

400

600

800

1.000

1.200

0 10.000 20.000 30.000 40.000 50.000 60.000

Oman is in a steel intensive phase of economic development and is about to double its steel consumption

Steel consumption per capita vs. GDP Thousand tones

Oman 2008Oman 2015

Low steel consumption• Agriculture• Labor-intensive

manufactures

Steel intensive • Construction /

infrastructure• Vehicles / consumer goods

I II IIISteel reposition • Services• High tech

5001000

2000

2006 2008 2015 (Potential)

Oman steel consumption Thousand tones

Ste

el K

g pe

r ca

pita

(fin

ishe

d st

eel)

GDP per capita (US$)

2008

Depends on industrial developments, for example: steel can be consumed internally and indirectly exported in the form of

consumer goods

Sources: EIU, IISI, Vale

Optimistic scenario

Base case

Jindal Shadeed

Oman has the potential to play an important role in the steelmaking value chain

Service centers Manufacturing

Service centersHeavy applicationsRolling millSteel makingPrimary ironRaw Material

DR pellets Direct reduction iron (DRI)

Flats:Slab

Plates

HRC / CRC*

Rebar

Sections

Wire Rod

Longs:Bloom / billet

• Cut / Shaping• Welding

• Cut / Shaping• Welding

•Wires•Coils / dampers•Electrodes

• Cut / shaping• Welding

•Seamless tubes

NON EXHAUSTIVE

Overseas logistics

Sharq steel Al Jazeera SteelSharq steel

• End product (sewer covers, shipping hull, etc.)

• End products (construction structures lattices, etc.)

• End product (Construction structures, rails, etc)

• Cut / shaping• Welding• Steel sheets• Tin plate• Checkered steel

sheet

• End product (home appliances, vehicle bodies, steel cans, etc.)

• Cut / Shaping• Welding

Competitiveness in today’s environment requires flexibility and innovation

• Flexibility in approach: – Partnerships– Integration across the value chain– Synergies

• Flexibility in production through traditional measures such as lean management

• Innovation through the application of new technology to maximise efficiency and production

Sources: The Boston Consulting Group

135

327

558

702

858

> 3000

Going downstream in the value chain adds value to the steel products

Service centers(Manufacturing)

Service centers(Heavy applications)

Rolling mill(finished steel)

Steel making(Semi-finished

steel)

Primary iron(DRI)

Raw Material(Pellets)

Prices for the equivalent to 1 Mt of steel product (US$ / t , 2007 basis)

Value addition through the value chain

Source: Steel industry McKinsey and Vale's experts on Steel division

67 72

217

371 400500

169

395

782

1.213

1.713

1 2 3 4 5 6

Job generation in steelmaking value chain

In the steelmaking value chain, job generation is concentrated in the downstream

Source: McKinsey and Vale's experts from Steel division, team analysis

Service centers (Heavy applications)RollingSteelmakingPrimary iron

(DRI)Raw Material

(Pellets)Service centers(manufacturing)*

Job generation (number of direct jobs / million tons produced) per phase

Cumulative job generation cumulative (number of job generated / milliontons along the value chain)

1213

1713

Once scale is achieved, and there is a market opportunity, downstream should be a natural development

Note: Average values for each phase in the direct reduction / electric furnace production routeSource: Vale, Clarksons, Metal Bulletin, team analysis

Sohar position in the value chain

Iron ore / mining Logistics up tosteelmaking

DRI / Metallics Semi & Finishedsteel (long / flat)

Service centers(Heavy

aplications)

Service centers(Manufacturing)

Globalfootprint

Localfootprint

Attract, promote“Sowing times”

Create, utilize“Harvest times”

Typical scale(Mt) > 100 Mt > 40 Mt 3 – 5 Mt 3 – 5 Mt 0.5 - 1 Mt 0.1 – 0.5 Mt

Sohar has all success factors to develop a steel cluster and offers a good investment climate, tax benefits and incentives in Sohar SEZ

Upstream

Access to raw material Sohar is a Pellets hub, part of Vale's world class global supply chain

Competitive logistics for bulk material

Sohar provides economies of scale to bulk material logistics allowing the usage of large size vessels

Low energy / power costs All gas & utilities infrastructure available

ScaleExports are a platform for scale generation and combined with Oman domestic market provides scale for upstream development

Land availability Sohar has available industrial land at a competitive price

Sohar has all success factors to develop a steel cluster and offers a good investment climate, tax benefits and incentives in Sohar SEZ

Downstream

Access to consuming markets

Proximity and strategic geographic position allows potential downstream producers to reach MENA´s market

Access to competitive upstream production Depends on upstream production scale

Competitive logistics for distribution

Sohar has a port with full distribution capabilities, interconnection with roads and a railway project potentially linking it to Abu Dhabi

Low energy / power / labor costs

All gas & utilities infrastructure availableOman has the lowest labor cost between GCC countries

Land availability Sohar has available industrial land at a competitive price

Oman has invested US$ 12 billion and is moving towards the establishment of a competitive steel cluster in Sohar

US$ 12 billion invested on the development of Sohar Industrial Port

Expertise provided to Sohar Industrial Port (Rotterdam port)

Actions already taken

Competive bulk logistics

Access to raw material

Labour

Access to consuming

markets

Attracting a world class iron ore supplier (VALE)

Establishment of a “virtual mine” in Sohar

Distribution infrastructure in place in the Port of Sohar

• Containers terminal

• Road interconnection

Already sustainable investments in general education and engineering schools

Source: Mckinsey

Conclusions

• Steel is a platform for diversification and economic development– Several countries like Japan, South Korea, Taiwan, Brazil and China, among

others, established a competitive steel production platform to support their industrial development

• Gaining competitiveness requires flexibility and innovation through:– Synergies and integration across the value chain– Application of new technologies to increase production

• There is a market window of opportunity in MENA that can leverage, through exports, the necessary scale to support a competitive steel cluster in Sohar

– Many regions have gas availability, but do not have competitive logistics– No other region, besides Oman has the combination of raw material and logistics