Contractors lash out over steel 'hedging'

The UAE Contractors Association has raised questions over claims by some steel firms that there is no shortage of steel.
Contractors lash out over steel 'hedging'
By Jamie Stewart
Sat 02 Aug 2008 04:00 AM

The UAE Contractors Association has raised questions over claims by some steel firms that there is no shortage of steel.

It also accused steel firms of "hedging" and manipulating the black market in a bid to force prices upwards.

But the accusations have been denied by suppliers, who say there is enough steel and they are not to blame for project delays.

"They are probably right in saying there is no shortage of steel," said UAE Contractors Association vice chairman Imad Al Jamal.

"But there are guys who tend to go to the black market and block quantities of steel until the price goes up, and then they [suppliers] sell to the market. They also practice what we call warehousing or storing. They buy quantities of steel, and they keep it away for six months until the price checks up. It is called hedging in business terms."

He also said steel suppliers are manipulating demand and supply.

"There is no proper regulation by the government to control these things," Al Jamal added.

But Samah Hassan, chief executive of steel trader and supplier Madar, hit back: "The industry does not have hedging tools available for it to use.

"We have the Dubai Gold and Commodities Exchange (DGCX) future contracts, which is a very good thing for the industry, but unfortunately, volumes are too small to enable anyone to use it for hedging. Until the futures contracts is big enough, hedging will remain unavailable for the steel industry."

There are 160 projects in the UAE facing delays, according to an Al Mal Capital report released last month.

"The UAE steel market has seen aggressive increases in selling prices in the last 12 months due to greater shortages in the Middle East," the report said.

But Hassan denied there was a shortage. "There is no scarcity of steel," he said.

"The four factors [affecting price] that anyone in the steel business should be looking at are raw materials, demand, energy and freight."

The row comes in the wake of soaring steel prices, which have risen by 92% in just six months, according to figures from industry portal MESteel.

Steel trader Stemcor Dubai's managing director Bill Attenborough said: "I would be very surprised if supplies were being held back.

"The biggest problem facing projects and causing delays is the credit crunch. The banks are holding back on giving people extended credit time."

RELATED LINKS:We need to monitor the goings on in the industry, US $5bn firm will boost steel supply

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