Al-Rajhi Steel Industries, one of Saudi Arabia's three largest steel producers, said it plans to spend up to 4 billion riyals ($1.07 billion) to more than double its production capacity by as early as 2012.

The company, which accounts for about a fifth of steel and by-products sales in the kingdom, plans to start a 1 million tonne reinforced steel plant in Jeddah by early 2011, CEO Mehdi bin Nasser Al-Qahtani told Reuters.

It also hopes to start production from a planned 1.8-million direct reduced iron plant which will most likely be located in the gas-rich Eastern Province towards the end of 2012 at the earliest, he added.

The two projects will cost between 3.6 billion ($484.4 million) and 4 billion riyals and increase the company's overall production of steel products to 4.6 million tonnes to cater for an expected rise in domestic demand in the coming years.

"We are working on financing ... Our group is linked to Al Rajhi Bank so there will be equity injection from owners and loan contribution from (state-run) Saudi Industrial Development Fund as well as from other banks," he said.

The firm plans to cut prices of its products by between 6 and 10 percent, starting this week, Al-Qahtani said.

The planned price cut follows a decline in the prices of scrap metal, the main input the company uses to make steel products, Al-Qahtani said in a telephone interview.

"The government's decision to ban scrap metal exports has led to a 10 percent drop in the price of this input ... We want to reflect this decrease on the final consumer," he said.

Prices of steel have almost doubled over the past two years as demand has outpaced supply in Saudi Arabia, where the government and the private sector are spending hundreds of billions of riyals on infrastructure and housing projects.

The rise in steel prices, exacerbated by increases in other input costs, has raised fears on the viability of some projects. A Riyadh commerce and industry chamber official said in November that some 80 percent of small and medium-sized construction projects have been put on hold because of the surge in building materials and labour costs.

But the plethora of projects that are either led by or sponsored by the government are offsetting any impact on steel demand in the world's largest oil exporter, Al-Qahtani said.

"We did not see an impact on steel demand, to the contrary, figures from 2008 show an increase over 2007 as government and development projects keep the pace of growth going up," he said.

He noted, however, that there will be a slowdown in demand during the next two months, because of the summer lull and a wait-and-see attitude after the government announced moves to subsidise construction material.

Saudi steel producers have a combined annual capacity of 8.43 million tonnes, according to Arab Steel, an industry association. Other steel producers in the kingdom include Hadeed, which is controlled by Saudi Basic Industries Corp. and Al-Tuwairqi Group.

Rajhi Steel Industries is a unit of industrial conglomerate Mohammed Abdul-Aziz Al-Rajhi and Sons, owners of which are related to the main owners of Al-Rajhi Bank, the Arab world's largest lender by market value.

"Our parent company wants to come to the (Saudi) market and float a stake probably early in 2009," Al-Qahtani said. He said he could not elaborate. -Reuters