US $200m blow to steel traders as prices plunge from July high

Dubai's steel industry has suffered a loss of at least US $200 million (AED735 million) when steel prices plummeted by around 40%, and is expected to drop even further in the coming weeks, according to industry experts.
US $200m blow to steel traders as prices plunge from July high
Many traders have now eroded profits they made when steel prices surged by 100% during the first half of the year.
By Benjamin Millington
Sat 04 Oct 2008 04:00 AM

Dubai's steel industry has suffered a loss of at least US $200 million (AED735 million) when steel prices plummeted by around 40%, and is expected to drop even further in the coming weeks, according to industry experts.

"At a conservative estimate, Dubai imported a million tonnes of steel over the last two months," Pankaj Gupta, associate director of brokerage firm SMC Comex said.

"All this material was booked at a minimum price of $1400 a tonne, probably more.

"The price then dropped to around $1000 a tonne which is a loss of $400 a tonne. That adds up to $200 million."

Gupta said many traders have now eroded profits they made when steel prices surged by 100% during the first half of the year.

Figures from industry website Mesteel show the price of a tonne of rebar increased from $750 in January to a peak of $1540 in July.

John Short, executive director of steel and base metals with Dubai Multi Commodities Centre (DMCC), said the price could drop in the short and long term.

"The indicators in the market today suggest there are more price falls to come in the coming weeks, but that could quickly change," he said.

"In the long term, economic theory dictates that prices will gravitate towards fair value which is what it costs to make it and a fair amount of profit.

"Fair value will change as other factors change, but fair value for steel today is not more than $750 a tonne and not less than $550 a tonne."

The CEO of steel trading company Madar, Sameh Hassan, said many traders and contractors had built up stock levels in anticipation the price surge would continue.

"There were some contractors that imported their own stocks and there were others who are not actually from the industry who jumped into the steel trading business," he said.

"Some of these people must have really burnt their fingers by getting into an industry that is not their own and I'm sure there have been some great losses out there.

"These are cycles that we see come and go, but not on this magnitude. This year has been shocking to everybody."

Hassan said the price drop was brought about by the oversupply of steel on local markets combined with the global economic downturn and a drop in activity during Ramadan, but he expected prices to stabilise.

"Given that regional demand is still strong, the accurate price should probably be around $1100. But I don't think we will see the $1500 price levels that we saw earlier this year."

Gupta gave similar figures, suggesting the fair price for steel is between $900 a tonne and $1000 a tonne and said he expects prices to increase to at least $1200 over the next six months.

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