A steal for steel

zoom

Demand for steel in the region is reported to have dropped.

zoom

After reaching an extraordinary high in 2008, the price of steel has fallen dramatically over the past year, but what is the future for the commodity in the Middle East? Construction Week takes a look.

After hitting a peak in mid-2008 the price of steel in the Middle East began to fall sharply, giving welcome relief to those in the construction industry. The sharp drop in demand caused by the global economic downturn was the main reason for the price change, but factors such as oil prices and an unusually high demand during 2008 were also to blame for the price difference that is now being seen. So what does the future hold for the steel sector and how will this affect those in construction?

Mixed views are currently being given by those in the sector as some nervousness remains regarding the economic climate and future of the region's construction industry, which is one of the largest consumers of steel products. Monthly demand for rebar in the region is reported to have dropped to 200,000 tonnes, down by more than 50% compared to July 2008. However, signs for the immediate and long-term future show prices beginning to stabilise, and in some cases, rise. Some regional steel providers are seeing such a positive outlook for steel demand that they are also planning expansions.

Price changes

Materials supplier Danube reported a 15% rise in the price of building materials in the Middle East during April, compared to Q1 of 2009. This has been attributed to firms rebuilding stocks as the market begins to restabilise. Steel reportedly underwent the sharpest price rise - from US $430 (AED1580) to $500 per tonne. "The current correction in the real estate and property sectors is driving the move in prices of construction materials, which will eventually lead to a healthier market with more stable growth opportunities in the future," predicts Danube Building Materials chair Rizwan Sajan.

Price differences vary depending on grade and quality, but according to MESteel, the online portal for buyers and sellers of steel in the Middle East, the current market prices across the board are significantly lower than they were a year ago, having fallen in the last few months of 2008 after rising earlier in the year. Under its UAE steel price indicator for May 1 2009, stainless steel HR coils of 316L base cost $3000 to $3100, a fall from the January 2009 price of $3500 to $3600 per tonne and less than 50% of the January 2008 price, which was stated by MESteel as $6400 to $6500 per tonne.

The portal cited steel billets and blooms at a cost of $730 to $750 per tonne in January 2008, this reducing to $400 from $450 per tonne in its January 2009 figures, and further still to $390 from $420 by May 1 2009. However, the past few weeks have seen further change in the market. "Commodity and raw materials prices have rallied along with equity markets in recent weeks amid a brighter outlook for a global recovery and lower risk aversion," explains a spokesperson from global construction consultancy Davis Langdon.

The Cruspi Global Steel Price index recorded a 2% rise in the week beginning May 20 compared to a week earlier. But, overall the index remains at half of the level seen last year reports Davis Langdon. This difference in price, however, may not be a true sign of the market condition. An Emirates Steel Industries (ESI) spokesperson explains: "If I try to analyse steel prices I'd exclude 2008 because the prices jumped very high and you cannot depend on [these figures] for analysis.

"If 2008 was missed out and a graph is drawn there has been a general upward trend [in steel prices] for the past ten years, with a steady $20 to $30 rise in price per year," explains the ESI spokesperson. "In 2008 the price jumped from AED2000 to AED6000 - that was strange. Then the price dropped back down to around AED2000," the spokesperson adds.

Prices are expected to fluctuate throughout 2009, while remaining close to the current figure of around $498 to $503 per tonne. "Overall, commodity prices are likely to have seen their floor, as supply cutbacks have been extensive," Davis Langdon predicts. "This does not exclude some corrections from current levels, as optimism over growth prospects remains volatile."

The recovery of crude oil prices and the overall world economy is expected to aid the market in the short-term. "Oil prices are increasing, giving a big enhancement for what is expected to happen to steel," states the ESI spokesperson.

Local issues

Uncertainty in the market over the future of large-scale projects will play a major part in the demand for steel in the short- to medium-term. Many such projects remain on hold, particularly in Dubai, which is greatly affecting the projected demand that steel providers had anticipated, hence the asking price. ESI has stated that it expects demand for steel in the UAE to fall by around 40% this year as construction work slows. This drop in demand is not expected across the region however, and places such as Abu Dhabi are expected to buck the trend, with lower steel prices in these areas being unlikely while demand remains high.

Worldwide changes

With demand down worldwide, many of the world's largest steel producers have cut both production and prices over the past few months. South Korean steel firm Posco cut its domestic product prices by 20% during May following similar moves by Nippon Steel and Baosteel. "We have decided to cut the prices of all our products earlier than planned as international steel prices are falling and raw material prices are also expected to decline," Posco stated; the firm had been expected to review its prices after July. Nippon and Arcelor Mittal are among the other large global steel producers to cut their production significantly in Q1 of 2009.

The World Steel Association reported that crude steel production in the 66 countries that it covers was 23.6% lower in April 2009 than in the same month in 2008. It has forecast apparent steel use to reduce by 14.9% during 2009 to around 1 billion tonnes, stabilising in the latter part of the year. In the Middle East, the forecast reduction in apparent steel use during 2009 is 8.9%.

A recovery in the demand for steel may take between three and five years according to JFE Steel president Hajime Bada. "If a recovery in the US economy is delayed, it will take more than five years for a revival in steel demand," predicts Bada. "The growth in steel demand in China is a drop in the ocean and not strong enough to have an impact on global demand," he adds. In Q1 of 2009 JFE closed blast furnaces in Okayama and Hiroshima and cut production by 35% compared to Q1 2008.

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM