While steel prices in Qatar remain relatively stable, weak Gulf Cooperation Council demand, especially in Saudi Arabia, is likely to pressure Qatar Steel’s sales prices, according to EFG Hermes. This is because around 50% of the steelmaker’s sales are in the GCC.

Lower steel prices contributed to a -16% on-year decline in Qatar Steel parent Industries Qatar (IQ)’s nine-month-through-September consolidated revenue to $933.8 million (see Kallanish 25 October). Prices were down as a result of weaker Middle Eastern steel demand caused by reduced capital expenditure, as well as the availability of low-priced steel from China and Turkey.

IQ’s net income in the third quarter fell -46% on-year, 16% below EFG Hermes’ forecast. Lower steel revenues were a major factor in the worse-than-expected performance. “The weak set of results reinforces our view that 2Q16 numbers were not sustainable and that IQ’s performance is likely to remain challenging in the medium term in light of the weak commodity price environment,” the investment bank says.

In the steel segment, revenue fell -22% on-quarter in Q3, “…likely on the back of lower volumes as prices only saw a marginal pullback q-o-q,” EFG Hermes says. Margins also contracted to 32% from 36.7% in Q2, likely on higher costs, but were better than the bank’s 29.5% expectation.

Qatar Steel has a rebar design capacity of 1.4 million tonnes/year, although annual production exceeds this. It also possesses a Dubai-based re-roller operation with 300,000 t/y rebar and 240,000 t/y wire rod capacities.