What have Demco Steel Industries' milestones been over the past year?
We have shifted our interest from the steel industry to various other sectors over the past few years. Real estate in Lebanon has become one of our main businesses. We have also expanded our shipping business overseas. And while we have maintained our position as market leader in the Lebanese steel market, we do believe that diversification is the key to growth today.
We have several projects that mainly consist of small-scale housing in very interesting residential buildings, including some products unique to the country. In our latest launch with RedRock Village & Spa project, we are creating an entire village in the Faqra mountains with a spa, a farm, solar panels, and bio waste facilities. There is huge interest from the Lebanese people in this kind of development, and so we're starting to develop in this area and have done very well. We sold more than half the project in three days, and it is a very large one. We are beginning work to lay down the necessary infrastructure as we speak, and are set to start the construction of the project in April 2014.
The initial RedRock master plan was designed by Foster & Partners in London, one of the best architectural firms in the world. The total area of the project is 500,000 sqm, of which 250,000 sqm will be dedicated to public gardens and roads. We are ready to lose more than 50% of the potential exploitation to make sure we keep a maximum amount of green areas and a beautiful landscape for RedRock residents. This non-commercial approach, which is something we are very proud of, will definitely be a first in Lebanon. We are building exclusive high-end chalets, where families will live in apartments ranging from 50 sqm to 130 sqm in size. There will also be gardens and individual swimming pools. The farm is key to the project as it will provide a place for families to experience a healthy lifestyle with daily products such as eggs, dairy products, and fresh organic vegetables. Furthermore, we will have facilities to provide numerous sports activities within the sports club in the spa or natural jogging track/hiking trail in the forest. Despite the current instability we are faced with, this is yet another example that specially tailored projects will sell out irrespective of political stability. An “outside the box" approach combined with our unique products are the main reasons why we sold more than 1,000 apartments/offices in various projects, enabling Demco Real Estate in partnership with Sayfco's excellent marketing team to become market leaders within a very short time.
In Europe 50 years ago, many people were accustomed to live in apartments of 200 sqm-300 sqm. Today, people live on average in 70 sqm residences because prices are much higher. People want smaller places in good locations and with excellent facilities, but they cannot afford large apartments. Five years ago, I started a small apartment project in the Metn area of Beirut, with units of 122 sqm. It was a huge success. At that time, we were the first to develop 100-sqm apartments. In fact, we sold all of the 122-sqm units in record time, with the 166-sqm units selling out immediately after. People want to be very close to Beirut, but cannot afford to be in the heart of the city because it is too expensive.
We are working on three towers on the coastal highway, including 30- to 45-story buildings. That was also different in the sense that the highest building on the highway is currently seven or eight stories high. People never liked to live high up, but due to today's demographics there is an increasing demand for this kind of housing unit. With land being so expensive the only thing you can do is to erect higher buildings. These apartments have magnificent 360° views of Beirut city and the Mediterranean Sea. None of the available projects have these facilities and views at these price levels. There is a market for the right product, and there is adequate liquidity in the country. The banks in Lebanon are fully liquid and need to lend to their customers who are looking for the right products.
Today, shipping has changed. First of all, the last two or three years have been extremely difficult for the shipping business because of the global recession. I believe that the US and Europe are beginning to emerge. Although there are still many issues to overcome, I am convinced that one year from now things will start kicking in again. We have ordered a few large ships. These are ships that save around 30% of fuel over the previous models, and that have a capacity to move 30% more goods. Their new design enables them to go faster than previous models. They can trade anywhere in the world, which is another way of diversifying our assets. The main play was based on the reality that the market today is very bad, with very low ship prices, though with new technology for better ships emerging. When you save 30% on fuel, you are basically saving about $1 million per ship per year on energy costs alone. We are selling off the old assets and replacing them with new ones. The new ship designs will eventually be so much more competitive that they will make the rest of the world's fleet obsolete. This new approach should result in a significant increase for our shipping business.
To this date, the quantities of steel that are being demanded in the country are the same in 2013 as they were in 2012. That was a surprise; we had expected demand to drop due to a slowdown in the economy. I don't expect the 2nd Quarter of 2014 to be the same, and am anticipating a slowdown over the coming months. The price of steel is set by the international market, and not the Lebanese market. Therefore, what happens in the construction sector in Lebanon affects the demand for steel; however, it doesn't affect the price. The main problem that we are having today is that there is a lot of competition between players in the steel business. The margins are very slim and interest in growing a business with such margins and very little added value is falling. Hence, this is the reason why we are focusing most of our energy on other sectors.
The biggest obstacle in proper forecasting is the political situation in Lebanon today. Visibility in this country varies very quickly. It is very difficult to be able to tell you where I see Demco in the near future because most of our activities are still regional, or within Lebanon itself. We have a plant in Syria that is operating at 20% capacity in light of the ongoing civil war. Hopefully, with some efforts from the international community in resolving the Syrian tragedy, we will be able to be part of the reconstruction process and enable MedSteel to produce at full capacity again. We estimate steel demand to be north of 2 million tons/year, of which we can easily supply 50% of the local steel sector. I believe that turmoil in the region will not last as long as people think; in the modern world everything evolves quickly. There will be a period of adjustment, but if we emerge from this uncertainty, we will be sure to grow substantially.