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Sat 13 Jun 2009 04:00 AM

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A steal for steel

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.

A steal for steel
Demand for steel in the region is reported to have dropped.
A steal for steel
A steal for steel
Steel producers have recently cut production and prices.
A steal for steel
The local steel market remains positive about its future.

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.

Top 5 global steel firmsArcelorMittal

Arcelor Mittal is a global steelmaker that has a presence in more than 60 countries. Its industrial presence in Europe, Asia, Africa and America gives the Group exposure to all the key steel markets. In 2008 the firm had revenues of US $124.9 billion and crude steel production of 103.3 million tonnes, which represents approximately 10% of world steel output. The steel manufacturer is also planning to develop positions in the high-growth Chinese and Indian markets.

Its construction industry products are offered by the firm's Steel Solutions and Services operation. Operating more than 500 facilities in 32 countries, the firm offers a wide range of flat and long products, tubes and stainless steel. Its expertise lies in light steel-based solutions for cladding, roofing and flooring. www.arcelormittal.com

NipponSteel

The steel making and steel fabrication operations at Nippon Steel include some of the world's most advanced technologies for medium-high grade steel requiring high processability, corrosion resistance and high-strength welds. The firm offers a wide range of steel, plus services including processing and welding. Around 70% of the firm's products are sold to the Japanese market; of the exported products, more than 70% are supplied to Asian countries.

In 1974, Nippon Steel established its engineering divisions in order to apply its engineering technologies to a diverse range of construction projects from steel, environmental and energy plants to buildings and long-span bridges. In July 2006, Nippon Steel Engineering was spun off as a separate company.

Building construction and steel structures account for 20% of the firm's sales; steel plants and environmental solutions account for 30% of consolidated sales. www.nsc.co.jp

Baosteel Group

China-based Baosteel Group focuses on the production of hi-tech and high value-added premium steel, with an annual production capacity of around 30 million tonnes. Its steel products form three main categories - carbon steel, stainless steel and special alloy steel. They are sold both in the domestic market and exported to more than 40 countries and regions and a world market including Japan, South Korea, Europe and America.

The firm's products are certified to ISO9001 and meet the standards for the API monogram and the JIS approval certificates. It was also among the first Chinese steel producers to achieve ISO14001 certification. www.baosteel.com

JFE Steel Corporation

Tokyo-based JFE Steel was established in April 2003. It has three main production centers: two large coastal steelworks in eastern and western Japan; and the Chita Works, which specialises in the production of pipes and tubes.

The West Japan Works is one of the world's largest steel mills and covers around 25.1 million m². The works has continuous, synchronised processes for iron making, steelmaking and rolling, and a flexible production system to meet client demands.

JFE Steel produces a wide range of steel sheets, including hot-rolled sheets made by hot rolling slabs, cold-rolled sheets made by cold rolling hot-rolled sheets, galvanised sheets and tinplate. www.jfe-steel.co.jp/en

Posco

Established in 1968, Posco is South Korea's largest steel producer. By 2008 it was on target to produce 50 million tonnes of crude steel per annum. The firm is expanding its production base into Vietnam and India.

Posco-Vietnam's cold-rolling plant in the Phu My Industrial Complex near Ho Chi Minh City has a capacity of 1.2 million tonnes of steel a year. The annual output of cold-rolled steel products will be 700,000 tonnes a year, and cold-rolled-full hard steel products will be 500,000 tonnes a year.

Posco has also completed steel processing plants in India, Thailand and Japan. The firm's products include tube steel, sheet steel and atmospheric corrosion resistant steel. www.posco.com

The slack demand for rebar on the Middle East market led Turkish mills to cut the exported rebar offer in late May, then offering rebar to the UAE for $470 per tonne.

"Recent strong demand for iron ore has been attributed to stockpiling in China, as local steel mills took advantage of the 40% decline in contract prices and cheaper shipping rates," explains the Davis Langdon spokesperson. "Some of the rise in imports was due to stronger seasonal demand for specialty steel products in the construction industry and new public infrastructure works.

"However, China's iron ore imports are likely to weaken in coming weeks amid signs of overcapacity in the steel industry," predicts Davis Langdon. "Seeking to curb the excess capacity, China has already directed commercial banks to limit or cancel loans to steel producers seeking to expand capacity," Davis Langdon reports.

During the initial downturn in the region's construction industry an excess of steel was available on the market as suppliers had previously increased production to meet the expected demand. As projects were cancelled or put on hold there was an inevitable over-supply. Much of this was consumed in other markets or exported, but not always for a profit. "A lot of companies lost a lot of money," reports the ESI spokesperson. "Some of [the steel] was bought for AED5500 per tonne and sold at AED1800 and we're talking about big volumes of perhaps 150,000 tonnes," stresses the spokesperson.

Market growth

Evidence of an upturn in the local steel market comes from the growth of some major firms in the sector. "There is some optimism among traders and suppliers," states the ESI spokesperson. "The market is now more stable and we are expecting an increment increase in price," they add.

In early June RAK Steel announced plans to increase its current annual 500,000 tonnes capacity of deformed steel reinforcement bars by 50% during 2009. The move is part of a strategy by the firm to meet gradual upturn in construction work in the emirate. RAK Steel has also unveiled plans to become an integrated steel mill and has commissioned preliminary planning to that effect.

"There has been a gradual resurgence in construction activities across the UAE, buoyed by the continued growth in tourism and residential development projects in all emirates," states RAK Steel CEO Ajay Aggarwal. "RAK Steel has accordingly received a marked increase in demand and now we are running to full capacity; this has been a key factor that has motivated us to push through with our expansion initiatives," he explains. The firm's primary market is currently the UAE, although it also exports products to Oman, Saudi, Bahrain, Qatar and Iran.

The firm is expecting a speedy recovery of the construction sector within the region. "In about two years we expect the construction market to get back to pre-2008 levels and thereafter maintain a growth trend of around 5% [per annum]," predicts Aggarwal. "Our expansion initiatives are part of Rakia's grand design to cope with the present and future demand of the construction sector and ultimately complement the development initiatives across different industries," adds Aggarwal.

Saudi Basic Industries Corporation (Sabic) has also announced plans for expansion, with an aim to more than triple its steel production capacity to 17 million tonnes by 2020. The increase will be made through acquisitions and the construction of new plants.

It seems that despite the global downturn the Middle East steel sector is set to continue growing, and the expansion plans of firms across GCC are a sure sign of confidence that such growth will materialise. And although in the short-term there may be some respite for construction firms with the availability and price of steel products, there is still some way to go before the supply meets demand should those mega projects that are on hold be restarted in the near future.

Top 6 Middle East steel firmsEmirates Steel Industries (ESI)

Emirates Steel Industries (ESI) is a wholly-owned government factory located in the Industrial City of Abu Dhabi (ICAD). It uses rolling mill technology to produce rebar for the construction industry.

Established in 2001, the mill currently operates at its full design capacity of 600,000 tonnes of rebar per year. It sells 100% of its products within the UAE.

ESI has achieved Quality System Certification from the UK Certification Authority and produces rebar conforming to BS4449/97 Grade 60 in sizes from 10m to 32mm, in lengths of 12m.

The firm is on a major expansion push to increase its rolling capacity and establish the factory as a fully integrated plant. www.esi-steel.com

QatarSteel

Qatar Steel was formed in 1974 as one of the first integrated steel plants in the Arabian Gulf. Commercial production began in 1978 and the company became wholly owned by Industries Qatar in 2003. Qatar Steel now has a 707,000m² facility located in Mesaieed Industrial City, which includes a continuous casting plant and rolling mills with the latest automated technology. An adjacent 375,000m² plot is reserved for future developments. The firm also operates a UAE-based subsidiary to meet the growing demand for high-quality steel wire-rod products within the GCC. It operates two primary facilities at its 60,000m² Jebel Ali Free Zone site: an upgraded wire rod mill with an installed annual capacity of 240,000 metric tonnes and a rebar mill. www.qasco.com

RAK Steel

RAK Steel is a joint venture between Ras Al Khaimah Investment Authority and Middle East Traders group. The second largest rebar manufacturing mill in the UAE, it has a design capacity of 500,000 tonnes per year.

RAK Steel rebar are made from pure steel billets, hot rolled in a highly automatic rolling mill and subjected to an online thermo-mechanical treatment called Quenching and Self Tempering (QST). The mill produces: 8mm, 10mm, 12mm, 14mm, 16mm, 20mm, 25mm and 32mm diameter steel deformed reinforcement bars (rebars) to international British and American standards according to client requirements.

The firm is aiming to increase its capacity by 50% by the end of this year to cater to increased local demand. www.raksteel.com

Sabic Metals

Sabic is one of the largest and most profitable non-oil companies across the Middle East and one of the world's five largest petrochemicals manufacturers. It is a leading steel producer in the Middle East, and the firm's metals business has played a vital role in the construction, development and industrialisation of the region. A number of flat and long steel products are manufactured at its production facilities.

Sabic is a public company with its headquarters in Riyadh. The Saudi Arabian government owns 70% of its shares, while the remaining 30% are held by private investors across the GCC. www.sabic.com

United Gulf Steel

United Gulf Steel is one of the largest producers of medium section steel products in the GCC. It has a 450,000 tonnes per annum capacity facility located at Jubail Industrial City, Saudi Arabia.

An ISO 9001:2000 certified company, it manufactures medium section structural steel products. The firm's product range includes a wide variety of structural steel such as IPE beams; UPE channels; equal angles; flat, square and round bars in various sizes.

The rolling mill can produce structure steel within close tolerances and with the required mechanical properties, and cater to stringent requirements for critical applications. www.ugsteelmill.com

Zamil Steel

Zamil Steel Structural Steel Division is one of the largest steel fabricators in the GCC. The firm fabricates steel structures and plate works for a number of applications including high-rise buildings, with products including structural steel, pipe racks, ducting and equipment support structures.

Saudi Arabia-based Zamil has achieved ISO 9001:2000 certification for its quality systems, plus ISO 14001 & OHSAS 18001 certifications, which have resulted in the improvements of process efficiencies and workforce safety. The Zamil Structural Steel Division is also certified by the American Society of Mechanical Engineers. www.zamilsteel.com

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