Newly-formed Sulb National Co will start before the end of next year a 300,000 tonnes steel billet plant that would cover 20 percent of Saudi Arabia's deficit in the product, its top executive said.

Sulb expects a government stimulus plan coupled with the imminent launch of a mortgage law to spur steel demand growth after a relative lull in 2009 during the global economic slowdown.   

Sulb, a family-owned firm, is seeking financing from both banks and state-run Saudi Industrial Development Fund (SIDF) for the project which will require 250 million riyals ($67 million) in investment, Faisal Al-Haddawi told Reuters in an interview.

'We have already approached the SIDF. We are looking for their support,' he said.   

'This project will help balance the huge deficit in steel billets and stabilise steel prices,' Al-Haddawi said. 'There is only one plant of this kind in Saudi Arabia and its capacity does not exceed 100,000 tonnes per year while our market imports at least 1.5 million tonnes of steel billets per year'.

Sulb, with a capital of 250 million riyals, will use local scrap metal and import hot briquetted iron from Libya and South Africa to produce steel billets, Al-Haddawi said.

'We plan to start production towards the end of next year,' he added.

German ABP Induction Systems will provide Sulb with the heavy equipment for the plant which will be located in Rabigh, Al-Haddawi said. Sulb will sell the product to steel firms in the kingdom.

Saudi Arabia's steel production capacity stands at about 8.4 million tonnes and authorities have imposed restrictions on exports of both the commodity and scrap metal due to tight supply in the domestic market.

Hadeed, owned by state-controlled Saudi Basic Industries Corp, accounts for about half of domestic production capacity. Other main producers include privately owned Al-Ittefaq Steel Products Co and Al-Rajhi Steel.

Hadeed raised prices of steel products earlier this month, the first increase since 2008, a move many analysts linked to a rise in global iron ore prices and a pick up in demand.

Saudi steel producers plan to expand their steel production capacity by at least 50 percent within the next three years, gearing up for an expected surge in demand from new industrial projects and demand for housing after the implementation of a long-awaited mortgage law.

Al-Haddawi said steel demand started coming back to 'normal levels after it declined in 2009'.   

'Steel production capacities are still below their level in 2007 and 2008 because steel producers accumulated high inventories amid the demand slowdown in 2009,' Al-Haddawi said. 'But the goverment spending coupled with the expected implementation this year of the mortgage law -- which will spur the construction sector -- will spur demand further and prompt steel manufacturers to come back to normal production capacities'. - Reuters