Steel demand may fall 30% due to slowdown

STEEL SUPPLIES: UAE steel production will not be affected as the country wants to stop its reliance on imported steel. (Getty Images)

Steel demand in the UAE could fall by over 30 percent this year with suppliers continuing to feel the impact of a slowdown in the construction sector, the deputy chief executive of Emirates Steel Industries (ESI) said on Monday.

But the state-owned company still plans to double its output from one to two million tonnes during the year, as the UAE looks to reduce its reliance on steel imports, Sridhar Krishnamoorthy told Arabian Business.

Expected demand in 2009 in the UAE for reinforcement steel, rebar, to be around 4.5 to 5 million tonnes, around 17 to 31 percent down from 6 to 6.5 million tonnes last year, he said.

"From what we've seen in the first three weeks of 2009 there is a reasonable bounce back in demand, with a lot of production cuts taking affect and the inventories have gone down, so we are seeing healthy demand," he said.

With the UAE construction sector accounting for a large portion of ESI’s steel, the firm is carrying out a detailed assessment to see which projects will go ahead in 2009 amid a contraction in the market.

High stockpiles and dwindling demand mean prices of steel have fallen to around $500 a tonne, a third of what they were at their peak in mid-2008.

Krishnamoorthy said he expected the price to recover by about five to 10 percent.

"I suspect the price will start moving up as we see a bounce back in demand, more than we expected,” he said.

“In most regions the price has gone up marginally, five to 10 percent, and the same is likely to happen in the UAE."

He said the commissioning of new mills at its Abu Dhabi factory would allow the company to increase its production.

"The UAE is a net importer country, being a domestic producer we have certain advantages to serve our clients better. As the UAE expands its production capacity it will displace the imports coming in,” he said.

Rebar accounted for 90 percent of steel produced by ESI, with around 90 percent of the firm's sales in the UAE, Krishnamoorthy said.

Sameh Hassan, chief executive of Madar Holding, which prepares rebar steel for construction, said demand was back to the pre-peak levels of the first half of 2007.

He said the steel market had stabilised from the price lows experienced in the second half of 2008, thanks largely to excess stock being taken out of the market.

“Business has stablised away from the euphoria of the end of 2007, first half of 2008, and away from the bottom of the second half of 2008, so we are in a kind of normal business environment, without speculators driving prices up,” he said.

The firm was running close to its full capacity at its plant Dubai Investment Park, he added.

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