Demco Steel  started operating a $200 million steel-smelting plant in the Syrian industrial city of Adra two years ago, just as the revolution erupted.
Demco’s managing director, Alex Demirdjian, had spent five years laying the ground work for a “melt shop” designed to produce 800,000 tons of liquid steel per day.
In 1992, Demirdjian took the helm of the company his grandfather started 70 years earlier and since then Demco’s market share has grown from about 20 to 50 percent and the company has diversified into real estate development and shipping. But like Lebanon’s two other major steel manufacturers, Demco had been entirely dependent on imported raw materials since the country’s sole steel rolling mill, Consolidated Steel Lebanon S.A.L., shut down in 2002 after operating for just over five years.
Since steel  melting requires an average of 150 megawatts of electricity a day, building the mill across the border, just two hours away from Demco’s offices in Beirut, seemed like a safe bet during the planning phases, Demirdjian says. He has not visited the melt shop since production began, but he says Demco has managed to keep it running at limited capacity for eight hours each day throughout the conflict.
Employing 300 workers, the Syrian factory produces about 20 to 25 percent of the plant’s total capacity and Demirdjian plans to ramp up production when the Syrian crisis is resolved. “We took a gamble to open there because we thought it was stable. Now we just hope that things will improve.”
As the only one of Lebanon’s three major steel trading companies with a factory outside the country, Demco is more vulnerable to the crisis across the border than its two competitors, Yared and Societe Libanaise pour les Metaux (Tannous), who collectively dominate the country’s steel production industry. Nonetheless, all three of them are feeling the ripple effects of declining local demand, increased regional instability and the global recession.
The trio continue to rely on imported steel from eastern Europe, Turkey and to a lesser extent Egypt and Syria to process building materials, and more or less, on demand from the local market to buy their products. So the fate of Lebanon’s steel industry is closely tied to the construction sectors’ and the international market price of steel.
Demirdjian says 80 percent of Demco’s output is sold in Lebanon. It exports about 20 percent of its annual production to international markets, such as the U.S., which partially offsets local losses. In 2012, Demco’s annual sales were $400 million, compared to $500 million in 2011, a 20 percent drop.
Both Demco and Tannous claim to have the largest market share in Lebanon. Demirdjian estimates that his company accounts for at least 50 percent of steel sales annually, while the Import-Export manager at Tannous, Charbel Beaino, claims Tannous supplies 60 percent of the construction projects in Lebanon and has a 40 percent market share.
“Obviously we compete with Demco over who is No. 1 or No. 2,” he demurred when asked how both companies could claim such a large share of the steel market.
Beaino says Tannous imports about 200,000 metric tons of steel per year, which it then processes into specialized steel building materials and steel wires at its facilities in Lebanon. He said the company still delivers between 11,000 to 12,000 metric tons of steel per month. In 2012, Tannous manufactured 900,000 metric tons of steel, down from 1.1 million tons in 2011.
“Obviously 2011 was better than 2012,” Beaino said. “In general the turmoil in Syria has obviously slowed down local activities and the situation in Egypt has affected us. The projects that started two years ago are still operating so you can see a lot of construction activity but not a lot of sales.”
The third major player in Lebanon’s steel sector, Yared Steel, won contracts to supply structured steel and deformed bars to several major hospitality projects under construction, including the Summerland resort, the Hyatt hotel, and the expansion of the Albergo, according to the company’s owner and general manager, Karim Yared.
Like Tannous and Demco, Yared is also reliant on imported raw materials from eastern Europe, Egypt, Turkey and China, which it processes into building materials at its facility in Zalka.
In 2012, Yared sold over 150,000 tons of steel – an 8 percent decline from the previous year – that retailed for about $790 per ton. Since new building permits have decreased between 5 and 10 percent in 2013, Yared expects sales to go down accordingly, though the price of steel is currently $670 per ton.
Like all energy-intensive manufacturing sectors, Yared business also struggles with the country’s inadequate transportation infrastructure and electricity supply. It costs between $6,000 to $7,000 per month to generate power at its factory, he said.
The obstacles facing the steel sector in general and Yared in particular are similar to the ones plaguing commercial real estate developers in the country. “My business grows with the construction sector,” Yared told the Daily Star. “So all the obstacles that affect them affect us.”