Emirates Steel Arkan eyes opportunities in Asia and emerging markets following merger

Improved demand and higher prices for its products contributed to its first-quarter profitability

Close to 90 per cent of the revenue this year is expected to come from Emirates Steel while Arkan will contribute 10 per cent, Above, a steel factory in Eregli Karadeniz in Turkey. Erdemir via Bloomberg News

Emirates Steel Arkan, the largest publicly traded building materials company in the UAE, will focus on export opportunities in Asian countries and emerging markets this year after it posted a healthy first-quarter profit, following its merger.

"Good markets for us have been the US, Europe and the Far East. These have been robust markets ... for us and we have a good base in these markets," Saeed Al Remeithi, group chief executive of Emirates Steel Arkan, told The National.

"We are now looking for opportunities in Asian countries and emerging economies."

Net profit for the three-month period to the end of March, climbed to Dh72.6 million ($19.7m), compared to Dh1.2m for the same period in 2021, the company said in a statement on Tuesday to the Abu Dhabi Securities Exchange, where its shares are traded. Better operational performance and higher sales volumes bolstered the company's profitability.

Revenue jumped to Dh2.04 billion during the period, compared to Dh233.5m in 2021. About 90 per cent of the company's revenue this year is expected to come from Emirates Steel while Arkan, which specialises in building materials, will contribute 10 per cent, the company said.

"Our enhanced operational efficiencies and proactive approach to sales were supported by improved levels of demand and higher prices," said Mr Al Remeithi.

Emirates Steel, which completed its merger with Arkan Building Materials in the fourth quarter of 2021 to create an industrial group with assets of Dh13bn, has benefitted from higher sales owing to a strong demand in steel products.

Global steel demand is expected to grow 2.2 per cent this year after seeing a growth of 5.8 per cent in 2021, according to a forecast by the World Steel Association.

Emirates Steel supplies domestic and international markets with steel products such as wire rods, rebars, heavy sections and sheet piles — essential in construction.

Although Emirates Steel Arkan witnessed higher input costs last year, Mr Al Remeithi said the prices of the company's end products helped offset such costs.

Emirates Steel alone had its first quarter net profit surge more than four-fold to Dh6.1m due to higher exports of rebar, sections and sheet piles to regions including Asia and North America.

Sales of rebar, an important component in construction, rose 8 per cent to 462,000 metric tonnes in the first quarter due to increased demand in Asian markets while sheet piles sales grew four-fold, largely driven by exports to North America.

Arkan's net profit rose ten-fold to Dh11.5m in the first quarter following the implementation of a programme to improve the company's organisational structure, the statement said.

The programme helped save about $60m for the company last year and aims to save $150m for the company in the next three years, Stephen Pope, chief financial officer of Emirates Steel Arkan, said.

"We have a target to achieve from our transformation project over the next few years. The target is challenging but we're very much confident of delivering our commitment to the board."

Emirates Steel Arkan exports represented 45 per cent of its total sales volumes while the balance was sold within the UAE, where the company maintains a 60 per cent market share.

While Emirates Steel has a strong international presence, the management is seeking to start exports of Arkan's products as well, Mr Al Remeithi said.

"We plan to start exporting at least some of Arkan's products internationally this year."

The Abu Dhabi industrial company currently has a total steel production capacity of 3.5 million tonnes a year. Mr Al Remeithi said it is looking to expand production to tap into increased demand for steel but declined to mention a specific target.

Emirates Steel Arkan, which has a strong export network to Europe, also said it does not have any immediate plans to enter any new markets in Europe to fill the gap left by Ukraine, a major steel exporter.

But the company foresees a positive second quarter this year.

"Despite an increase in geopolitical tensions, the outlook for the second quarter is favourable and the efforts we have made to improve the performance of our business units will continue to provide opportunities for further growth.”

Updated: May 10, 2022, 9:42 AM