Gulf Investment Corporation (GIC) has acquired 50 per cent shareholding of Brazil's Companhia Vale do Rio Doce in Gulf Industrial Investment Company (GIIC) for about $480 million, making GIC the sole shareholder. GIC's project to build a 6 million-tonne-a-year (t/y) grassroots pelletising plant close to the GIIC facility at Hidd will now be carried out as an expansion.

GIC had always pushed for the project to be an expansion, and the disagreement between the partners is understood to have been a strong factor in the buy-out decision. Economies of scale are likely to bring project costs down by some $120 million to about $230 million.

Technical bids were opened on 7 June from Japan's Kobe Steel, Germany's Siemens and Italy's Danieli for the engineering, procurement and construction (EPC) and equipment supply packages. Commercial bids will be opened on 27 June, after which GIC will draw up a shortlist of two.

A financial adviser is due to be selected imminently. Arab Banking Corporation (ABC), BNP Paribas and HSBC are understood to be the frontrunners. ABC was advising when the project was to be carried out as an independent plant and is also the adviser on the nearby United Stainless Steel Company (Usco) scheme, in which GIC is the main shareholder.

The selected bank will be responsible for the selection of either the UK's Atkins or the US' McLellan & Partners to carry out the final bid evaluation.

GIC's ultimate plan is full integration along the iron and steel value chain. It has received a gas allocation from the government to establish a steel complex close to Usco and GIIC. The plant is likely to include a 1.6 million-t/y direct reduction iron (DRI) unit, a 1.1 million-t/y meltshop and a 1.1 million-t/y rolling mill. Total project costs are estimated at about $500 million.

GIC is planning to establish a holding company for the three projects. It is also planning upstream integration and is in talks with several iron ore producers.

Steel suppliers in the Gulf are warning contractors and developers to prepare for a summer of soaring reinforcement steel (rebar) prices, after a 33 per cent hike in the first five months of the year left prices at record levels in early June.

Rebar prices hit $560 a tonne in Dubai on 7 June following a surge in global demand for steel, which is set to sustain prices at high levels for several months.

"I expect rebar prices in Dubai to remain in the range of $530-570 a tonne until the fourth quarter," says Vikram Bhatia, director of Dubai-based Alam Steel Industries. "Then it is likely they will dip as construction activity slows in the US and Europe. Prices traditionally weaken in Q4."

The current prices far exceed the previous record levels of about $490 a tonne seen in December 2004 and have reignited concerns that rising construction costs could bump the region's booming construction sector. In April, Dubai announced that it was lifting import tariffs on the material in order to rein in rising construction costs in the emirate. "The reconstruction of New Orleans following Hurricane Katrina has been a contributing factor," says Matthew Watkins, senior consultant at London-based Commodities Research Unit (CRU). "But there is also strong demand across the US from non-residential construction and from the automotive sector."

However, Watkins believes it is supply-side shortages rather than increased demand that is behind the increases, and that prices may correct before the autumn. "In 2004, the increases were driven by strong demand from the US and China," he says. "This time constraints on the supply side have been more of a factor. There have been major outages in capacity caused by accidents at mills in Brazil and Ukraine, strikes in the US and Mexico and production problems in Europe. We expect the prices to come down a bit sooner than the fourth quarter. Supply-side disruptions tend to cause short, sharp movements."