Hard knocks

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Precious metal: The cost of reinforcing bars has risen from US $750 to US $1150 per tonne since the beginning of 2008.

The construction industry is steeling itself for even more pain as dwindling steel supplies in the Middle East drive up prices. Jamie Stewart reports.

It seems that barely a day goes by in the region without a new major project being tendered, a new multi-million dollar contract being awarded, or a new development blasting out of the sand.

It is this remarkable construction boom, fuelled by healthy oil revenues and rampant demand for commercial and residential property, that has led to the rapid expansion of the steel industry across the GCC, as suppliers battle to meet today's sky high demand.

According to a report published by the International Iron and Steel Institute, an organisation representing 19 of the world's 20 largest steel companies, the global growth in crude steel output saw a small decrease in 2007 to 7.5%.

Despite this global slowdown, the Middle East was able to buck the trend, with growth in production during the second half of 2007, despite well publicised global economic problems.

According to figures from Mesteel, steel production in the region is indeed on the rise. The rate of growth is predicted to continue, with high demand presenting a huge challenge to suppliers eager to satisfy the hunger within the market.

Despite this growth, however, regional consumption continues to outstrip supply on an alarming scale. There are over US $1 trillion (AED3.7 trillion) of construction projects currently underway in the GCC, according to Dubai-based research firm Proleads.

Estimates put predicted steel consumption for 2008 at 19.7 million tonnes. All of which is reflected in the cost of steel which, like the projects spread across the GCC, continues to spiral upwards.

Customs duties on steel were lifted in March of this year, along with those on cement, to bring some relief to struggling contractors who had no option but to pay the market rate.

At the time of the move, Dubai customs said it was "to allow all contractors and real estate developers to import these two materials with no restrictions."

Prices have continued to rise, however. According to Mesteel, since the beginning of 2008, the price of steel billets and blooms has risen from $730 to $1,000 per tonne, while the price of reinforcing bars has risen from $750 to $1,150.

Over the past five years, the price of steel has risen consistently, according to Dubai Chamber of Commerce and Industry.

The situation has been reflected around the world. Internationally, steel prices rose considerably during 2007, a trend which has continued into 2008.

GCC countries have reacted to the gulf between demand and supply, though as is the case in any market, when an explosion occurs the likes of which has been seen in the construction industry, any reaction takes time to bear fruit.

Spencer Felix, exhibition manager of the Middle East Manufacturing Exhibition (Memex), said in a statement last week that GCC countries are to invest $18 billion to build 46 new steel plants.

Thirty-three of these will be based in the UAE and Saudi Arabia. Along with this huge investment, there are companies which are prepared to inject the cash required to pursue the extremely high level of demand by increasing supply.

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