Qatar Steel, a unit of Industries Qatar, has bought a 20 percent stake in Saudi Arabia-based South Steel Company, Qatar Steel said in a statement on Sunday.

Under the deal, Qatar Steel will provide South Steel with technical support and supply the plant with sponge iron, which is a key raw material for the manufacturing of steel products by the plant, it said without disclosing financial details of the deal.

Located in Saudi Arabia's southern Jazan Economic City, South Steel plans to produce 1 million tonne of steel billets and 500,000 tonnes of steel bars annually by mid-2011, the statement said.

Investments in the first phase are estimated be around 1.4 billion Saudi riyal, according to the statement.   

"Thanks to this agreement with Qatar Steel, South Steel Company has completed all success factors for this vital project, particularly after the state has supported this project with a 600 million riyals soft loan secured by the Industrial Development Fund," said Sheikh Sulaiman Bin Saleem Al Harbi, chairman of South Steel.   

The steel produced from the plant will be used to fill the demand gap in the local market in addition to supplying Yemen and neighbouring African markets, it added.

South Steel is a Saudi closed joint stock company owned by Saudi Pan Kingdom Company and other Saudi and GCC investors. It has a capital stock of 450 million Saudi riyals.