The global steel industry is undergoing a significant shift, with the Gulf Cooperation Council (GCC) countries positioning themselves as a new hub for steel production and processing. This transformation is driven by ambitious national agendas, particularly Saudi Arabia’s “Vision 2030,” which aims to diversify the economy away from oil and center it on industrial development.
Gulf Countries’ Strategic Shift
The GCC nations, with Saudi Arabia in the lead, are leveraging their low natural gas prices to power direct-reduced iron (DRI) plants, enabling them to produce high-quality sponge iron at the lowest global cost. This energy advantage offsets the logistical cost of importing iron ore, overturning the traditional “resource-oriented” industrial model.
- New Ventures: In late August, Mauritania’s state-owned mining company, SNIM, and Saudi Arabia’s Hadeed announced a joint venture to develop a new iron ore mine in Mauritania. This is part of a broader strategy by GCC sovereign funds to secure raw materials and technology worldwide.
- Green Steel: The region is emerging as a strong contender in the green steel market, with significant investments from sovereign funds and partnerships with global players such as Baosteel and Vale.
Impact on the Shipping Market
This industrial expansion is a positive development for the dry bulk shipping market. Since the GCC countries have limited domestic iron ore reserves, their growing steel production relies heavily on seaborne imports. In 2024, the Gulf countries imported 47.2 million mt of iron ore, making them the fourth-largest seaborne importer after China, Japan, and South Korea.
- Capesize and Supramax Demand: The majority of these imports—92%—originate from Brazil and are transported on Capesize vessels. Meanwhile, Supramax bulk carriers are the primary vessels for steel imports and exports, accounting for 72% of the import market in 2024. The future commissioning of new projects and steel mills is expected to boost demand for both vessel types significantly.
- Dry Freight Prospects in Africa: The new joint venture in Mauritania, along with the highly anticipated Simandou project in Guinea, adds another dynamic to the dry freight market in West Africa, with a target annual output of 12–14 million mt. Given the long voyage distance, this trade will also favor Capesize vessels.
Geopolitical Risks and Challenges
Despite the positive outlook, this transformation is not without challenges. The region remains exposed to significant geopolitical risks, particularly in key trade chokepoints. In 2024, 60% of the Gulf countries’ iron ore imports passed through the Strait of Hormuz. A closure of this critical passage could halt trade and leave domestic steel production stranded, highlighting the fragility of the region’s new supply chain.
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Source: Breakwave Advisors
