State-owned Rashtriya Ispat Nigam Ltd (RINL) is looking at Saudi Arabia for setting up a 3 mtpa steel plant as a joint venture with local major Rajhi Steel at an investment of Rs20,000 crore ($ 3.6 billion).

Buoyed by construction boom and growing investment in the real estate sector, steel consumption in Saudi Arabia has gone up at a faster pace over a decade. It, however, hugely depends upon imports to meet the domestic demand.

Steel consumption in Saudi Arabia increased to around 12 million tons in 2011. On the other hand, as per World Steel Association figures, its production rose to 5.3 million tons in 2011, up from five million tons in 2010. The remaining is imported.

The Riyadh-based Rajhi Steel has over 3 mtpa capacity now and sells most of its produce within the country, which is the fastest-moving steel consuming market in the Middle East. The company mostly produces rebars those find application in the construction sector.

"RINL is in talks with Rajhi Steel for a three million tons per annum plant in Saudi Arabia. The integrated plant would produce both long and flat products. RINL has forwarded non-disclosure agreement for signing," a source close to the development told reporters.

The gas-based plant would require Rs20,000 crore to set up which would be shared in the ratio of shareholding between the two parties, and take five years to go on stream from the start of construction. The shareholding and other matters would be decided in the days to come, he added.

Industry watchers said Saudi Arabia’s reliance on imports would come down gradually as the country is poised for a big domestic capacity addition. Saudi Arabia’s domestic output was just 2.98 million tons in 2000.

The joint venture would allow the state-run RINL to make a move to a market which has lots of potential and is abundant with petro products that would prune dependent on coking coal, which would get scarcer and dearer given its limited source.

SAIL has also plans to set up four overseas plants in Mongolia, South Africa, Oman and Indonesia with a total investment of $ 12 billion.

RINL is the second largest state-run steel maker in the country producing three million tons per annum (mtpa) at its lone facility at Visakhapatnam. The capacity is being raised to 6.3 mtpa in the current fiscal.