Saudi Arabian Fertilizers Co (Safco) said on Sunday it has signed a deal with a steel unit of Saudi Basic Industries Corp to set up a steel plant with a capacity of 1.7 million metric tonnes a year.

Safco and Hadeed would jointly build the plant to produce steel sheets at Jubail, with completion expected in four years, Safco said in a statement on the bourse website.

Sabic, the world's biggest chemicals firm by market value, owns 42 percent of Safco.

The deal will "reflect positively" on the company's results and help Safco maintain its level of profitability, Sabic chief executive Mohamed Al-Mady said in the statement. Safco's profit surged 125 per cent in the second quarter, beating profit forecasts.

Hadeed will also set up a factory with capacity to produce 500,000 metric tonnes a year of additional steel rebar, bringing its total capacity to 2.2 million tonnes per year, the company said.

A construction boom in the Gulf, fuelled by windfall state revenues from a more than seven-fold rise in oil prices since 2002, is encouraging more steel producers to expand their operations in the region. - Reuters