Steel prices might witness a further increase following an increase in scrap prices

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Dec 2009

Construction sector in the UAE witnessed a massive drop in costs during the past 12 months. Prices of most materials dropped by more than half compared to 2008. Producers and distributors said they experienced a difficult year as reduced cost coupled with falling demand led to severe drop in revenues.
Most affected were ready-mix companies. Many of them had to cut their production by more than 50 per cent and send several staff on leave in order to reduce operational cost.
The UAE market experienced oversupply of cement and producers had to cut production, in an effort to bring down the excess cement in the market. By the last quarter of 2009 imports had drastically reduced.
Steel used in the construction sector also faced a similar fate. The beginning of the year witnessed a severe oversupply in the market, bringing the prices down by half.
Although the excess cement in the market had significantly reduced by the end of the second quarter, imports failed to pick up as demand continued to remain weak. Meanwhile, local producers said they had not reduced production as locally manufactured steel was sufficient to satisfy the domestic demand. Producers, however, said they had to severely reduce their profit margins in order to discourage further imports.
Steel
Prices were usually moving around $460-480 during the first two quarters following a massive collapse in October and November of 2008. With an ongoing construction boom across the country, the year 2008 began with rebar prices at $760 per tonne in January, gradually moving up to $770 in February, $840 in March, $1,025 in April 2008 and reaching the peak of $1,540 in July 2008, after which it started its downward slide. It, however, remained more than $1,000 until September 2008.
Prices during the first half of 2009 had been fluctuating. The year started with rebar prices at$485 in January, from $460 in December, increasing to $510 in February before falling to the lowest price (for the past two years) of $420 in March. Rebar prices again moved up in April to $455 and increasing further to $495 in May and falling again to $455 in June.
By the third quarter rebar prices have shot past $500 per tonne for the first time since February this year and had reached the highest since November 2008.
Industry analysts, however felt the increase could be temporary as there has not been enough evidence of real growing demand.
"Prices had been relatively steady during the past two months. It looks like they are moving into a very unstable phase again," Karel Costenoble, Manager at Mesteel had told this newspaper in August.
Billets prices also increased from $460 during the first week of July to $480 per tonne in August. It touched its lowest price of $333 in March – the lowest during the past two years.
Currently, the demand for steel in the country remains soft as work on several projects continues to remain low key.
The prices, however, have been marginally increasing. While rebar was priced at $475 per tonne in November, by the second week of December it increased to $495 per tonne. "Very soon, we might witness a further increase following an increase in the price of scrap," said Costenoble.
Local producers had also increased the steel prices. Ajay Aggarwal, CEO of RAK Steel, had earlier told this newspaper that a price increase locally was inevitable. "The demand remains the same. However, local manufacturers have to make some profit and it is bound to reflect in the pricing strategy," he said.
Meanwhile, the prices of universal beams and columns have also moved up from $580 per tonne to $600 per tonne.
Japanese beams are priced at $540 per tonne CFR Dubai, said Costenoble.
The drop in prices of building materials had a similar impact on overall cost of construction. In Dubai the construction cost per square foot dropped from a high of Dh1,200 per square foot (core and shell residential) in August 2008 to between Dh280-300 per sq ft in general.
Contractors' profits also came down from 15 to 20 per cent to between eight and 12 per cent.

Source: Emirates Business