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Sat 28 Feb 2009 04:00 AM

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The steel story

The demand for steel in the UAE is expected to drop drastically this year. The good news is that steel firms will be able to use the profits from 2008's high prices to ride through the current storm.

The demand for steel in the UAE is expected to drop drastically this year. The good news is that steel firms will be able to use the profits from 2008's high prices to ride through the current storm.

In the UAE Steel Industry Analysis report published in August 2008, the UAE steel industry was expected to grow by more than 200% from its current levels by 2012.

The UAE was pegged as one of the most promising steel markets in the GCC region, as production peaked at 1.7 million tonnes in 2006. The boom in the construction sector, cheap and reliable gas and energy supply besides geographical positioning, were cited as the major driving forces for the steel industry in the UAE.

Payments have been affected and the market is not in a good condition in Dubai. - Anand Bhavikatti, chief executive (finance and administration), DBMSC Steel.

But that was before the financial crisis hit. The collapse of the financial worldwide market impacted the UAE, which in turn affected the steel industry.

"Payments have been affected and the market is not in a good condition in Dubai. But we still have projects going in other GCC countries, such as Qatar, Saudi Arabia. Abu Dhabi is still going on at a steady pace," says Anand Bhavikatti, chief executive (finance and administration), DBMSC Steel.

DBMSC are distributors of structural steel blades, channels, beams, columns, that go into the oil and gas sector, ship building and to major steel fabrication companies.

"There is a general slowdown in the UAE. We as a company had expansion plans, but right now everything has been postponed by six months," says Bhavikatti.

Vikram Bhatia, director, Alam Steel, is also facing issues with payment delays.

"There is a massive amount of non-payment from triple A firms. There seems to be a general problem of them being unable to come up with money which transfers to us, as we are essentially a sub-contractor.

We focus our resources on collecting our receivables, making sure they come in a timely manner. We stay close to our clients, if they have genuine problems, we try and see how we can help them with extended credit facility," says Bhatia.

The market is extremely challenging at the moment, predominantly because rebar prices have fallen around 70% off their peak prices in July 2008.

"We also had an issue with speculative players importing rebar into the UAE, just to sell for a profit. And they didn't know how to get rid of it, so they panicked and sold it at any price. That hurt the market as well," says Bhatia.

There has been an over supply of steel which led to a further decline in the market. In September-October 2008, when Lehman Brothers collapsed and the financial world was thrown into turmoil, it impacted the UAE market as well."Suddenly the banking sector here was under pressure. There was a lot of money in the UAE waiting for the dirham revaluation against the US dollar and when that didn't happen that money was moved out of the country.

But the banks had already loaned against that, assuming that the deposits were there, so banks were suddenly short of cash. They pulled the reins on mortgaging lending, lending to real estate that further exacerbated the problem," says Bhatia.

Demand for property began dropping, sales hit at an all-time low - and liquidity vanished from the market.

We are anticipating less demand in the UAE, so we are focusing on Saudi Arabia and other markets. - Vikram Bhatia, director, Alam Steel.

"Dubai has always been a confident economy. Temporarily that confidence has been removed which in turn has hurt future projects. Projects have been cancelled or delayed, and demand has definitely become slow this year. Liquidity problems mean our clients cannot pay us," says Bhatia.

Most steel companies are following a policy of concentrating on other GCC countries.

"We are anticipating less demand in the UAE, so we are focusing on Saudi Arabia, and other markets. We will redeploy resources into Saudi Arabia and Qatar, if volumes in Dubai fall significantly," says Bhatia.

The market is also facing an issue of over-supply of steel in the market.

"In terms of rebar there is probably still a few months stock, although it has come down drastically from the levels it was in October 2008, fresh imports at lower prices have begun coming in. For structural steel there is still an over-supply in terms of specific products, such as long structural steel like sections. The plate market is not as bad. It will take till the end of this year for things to clean up," says Bhatia.

Companies are still positive about UAE's ability to bounce back from the recession.

"It is no secret that the construction industry has been affected, but as I said earlier we have plans to expand and not to stop our investments in the region. It is no doubt that BIM is the solution for the construction companies in the current situation, once this situation is back to normal, the construction companies will gain the benefits of BIM on the long run," says Sharif.

So it is not a question of will the economy recover, but when it will recover.

"I am confident that the government will take measures to induce confidence back into the economy. The right measures will be taken to solve the issues in the banking sector, which in turn will help the construction sector," says Bhatia.

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