Tug of war

Industry observers estimate cables consumption is growing by some 10-15% each year in the Gulf states. This unprecedented hunger means high quality cables are now in short supply in the region.

Korea’s ILJIN Electric Co. is a new player in the Middle East. The firm previously focused selling its high-voltage underground cables in Europe, Asia and Australia, but was drawn to the region by the increasing supply/demand imbalance. The company’s general manager for its global business division SeYeon Kim explains: “Demand in Dubai has taken off over the last couple of years and production in the region is limited. Demand here really exceeds capacity.”

Illustrating the magnitude of the problem, Kim says just one tender in Dubai can be for 1 200 km – the same as ILJIN’s entire annual output. “We cannot install 1 200 km during two years, so we are getting only 10-20% of a tender,” he adds.

The company’s sales volumes are strongest in the UAE at present, but orders from Qatar, Bahrain and Oman are gaining momentum, as those countries also begin to invest more heavily in infrastructure development.

Hungrier neighbours

The current building frenzy in these countries is well documented, but what is often overlooked is that these markets are dwarfed by larger cables consumers in the region, such as Saudi Arabia and Iran, whose rising needs are also contributing to the cables shortage in the Middle East.

“I have heard from different suppliers and contractors that in Saudi Arabia there will be a huge shortage of cables for the next ten years,” says Mohammad Abouzalan, sales manager at Syrian Modern Cables. “A few new factories are opening there, but they are going to have a shortage all the same as Saudi Arabia is huge.

Alireza Kolahi, vice chairman of Iran’s Abhar Wire and Cable Co. agrees: “Probably the heavier investment and faster expansion now is in the Gulf states, but Iran just by virtue of its sheer size, even if it is growing at 4-5%, compared to the 10-15% that countries in the Gulf area are growing at, outstrips them in terms of demand.”

In Iran, like elsewhere, cables consumption is buoyant across the whole spectrum of industry. “We are not just talking about oil and gas projects, there is the mining and metals industries, city electrification, transport, railways, metro systems and so on,” says Kolahi.

“There is obviously more money around now due to higher oil prices and that money is being spent on infrastructure. We have a population of around 70 million people and there are at least 10 cities with a population over 1 million and these cities need power and transport and employment .

“Iran has almost not touched its mineral resources over the past two decades so those are now being developed and the whole country is just geering up,” he continues.

To feed and employ 70 million people that needs a lot of investment and the market will be there for a long time. Even in terms of oil and gas, we have probably one of the lowest production-to-reserve ratios in the region so we will have oil for a very long time to come.”

In Syria too, cables demand is on the up. “Syria is also expanding and it has been open for the last three years for new industry and overseas markets,” says Abouzalan. “It is not like the Gulf level – we don’t have the same financial things there, but Damascus especially is developing.” He tips Libya to become a bigger cables consuming market as well.

Right now we are really focusing on Libya; we believe it is going to be a very good market to be in next year. They have started changing their strategies and are being more open to external companies,” he explains.

Indeed, last year saw several international firms unveil investment projects in Libya, among them energy giant BP, which announced a US $900 million oil exploration and production programme – marking its return to the country after an absence of more than 30 years. Elsewhere in the region, there is certain to be a mass of cables tenders from Iraq in the years ahead as the country begins to rebuild its war-torn infrastructure, which will only add pressure to the already limited availability.

Global trend

But the phenomenon is not just confined to the Middle East: the cables business is booming throughout the world. “There is also high consumption in Russia, and in Europe there is big demand from companies looking to replace cables that were installed after the Second World War,” notes Kim.

China also has a seemingly insatiable appetite for cables. But with so many domestic producers, the market is very competitive and the focus is on price rather than quality, according to Kim, making it unattractive for many potential importers. Mostly only suppliers of highly specialised cables are able to profit from China’s expansion drive.

Despite the worldwide surge in demand, cables prices have not skyrocketed. The market is highly fragmented and therefore competitive. Although prices have been driven higher in the wake of sharp increases in raw materials costs, namely copper, cablemakers say profit margins have largely remained static.

“The cables market is very competitive. Even with the strong demand, if you don’t provide the best price someone else will get the business. You have to provide excellent quality, good service and the best price or you don’t get the order,” says Abouzalan. The huge leaps in profitability at cables companies are mostly down to increased sales volumes.

With delivery lead times constantly lengthening and the cables sector firmly in an up-cycle that looks set to continue for a number of years ahead, many manufacturers are now installing new production lines in order to capitalise on the demand.

Capacity climbs

ILJIN recently opened a new medium-voltage cables plant in Vietnam and is considering adding machinery for high voltage too.

Abhar Wire and Cable Co. is also expanding, increasing the production space at its totally integrated factory in Abhar, some 230 km northwest of Tehran, by almost 40%.

We are expanding and trying to get more out of our existing facilities, adding bits and pieces here and there and improving the production lines – having our own engineering facility helps us in that regard. We are also just starting up a new factory,” says Kolahi.

The firm, which has a turnover of US $90 million, currently processes around 10 000 tonnes of copper each year, producing the full range of cables from instrument cables to very large section high-voltage power cables. “We produce cables up to 230 kV. 132 kV and 63 kV are probably the biggest market at the moment, but in Iran now there is also great demand for 230 kV,” he notes.

Syrian Modern Cables is investing in new capacity too. The firm’s output, measured in copper, is set to rise from 1 000 tonnes per month to 1 800 tonnes, as a result. The company is also expanding its product offering to include 400 kV cables.

We decided to increase the voltage as we believe that is where the demand will be for the next few years,” explains Abouzalan. “Right now 33 kV is our best selling product – that is because we won one of the biggest projects in Europe – a wind farm project – we have a contract to supply them with cables for the next four years,” he adds.

Interconnecting lines

Energy infrastructure cables, particularly high-voltage land-based and submarine cables are important growth areas for suppliers and are frequently reported to be the most profitable product line for leading manufacturers.

These types of cables are used for interconnections between high-voltage electricity networks and to take power to islands and to offshore oil production facilities. It is no surprise, therefore, that such cables are in huge demand in the Middle East, home to the majority of the world’s oil reserves and where the construction of artificial islands is currently very much à la mode.

On top of that, the GCC countries are halfway through a complex grid interconnectivity project. Italy’s Prysmian and Nexans of France won a joint cables supply contract worth US $343 million for the scheme.

The two firms are also in the process of boosting their capacity of land-based and submarine high-voltage cables in response to growing demand. They can be certain of a continued outlet for their products because, as energy markets around the world open themselves up to greater competition, interconnection projects can only be expected to increase.

While manufacturers of other goods and equipment grow jittery over talk of an impending global economic downturn, right now the only fear for cables suppliers, and especially those operating in the Middle East, is having to turn customers away. And order books look set to bulge for a long while yet.