Constructing steel prices

The price of steel rocketed during the boom years as the demand for rebar exceeded supply.

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Recently characterised by high prices, supply disruptions and business volatility, the steel industry knows challenging times. But on the cusp of a construction upturn, there is some hope for its future. 

Perhaps even more dependent on the construction market than aluminium, the fluctuating prices of steel have almost mirrored the twists and turns of the Middle East’s building industry during the last two years.

Though steel is one of the most common raw materials, and evidently, the most used metal in the world, it is far from impervious to the effects of a global downturn.

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During the boom years, the price of steel was at its peak. The demand for reinforcing steel bar (rebar) particularly, widely used in civil construction works, caused steel prices to soar from US $820 per tonne in January 2008 to a massive US $1,640 per tonne in June of the same year.

In April 2008, reports from trade media announced that steel prices had rocketed in the UAE, thanks to the construction industry, the price of rebar outpacing supply in the country and increasing in price by as much as 35%.

In fact, traders were so confident in the market at that time, that they anticipated further growth for another two years. Indeed, with the total budgeted value of active civil projects in the Gulf at US $1.5 trillion, Gulf rebar consumption was expected to reach 14 million tonnes by the end of 2010.

As it happened, it took just one month for steel costs to come down. Falling from US $ 1,400 per tonne in August to just US $1,000 in September, the price of rebar was the first sign of a slowdown in the real estate market – signaling an excess in supply combined with less demand.

By January 2009, industry leaders were more realistic about prices in the future, correctly forecasting further declines for the rest of the year as the recession took hold.

This year, the story has been different again. In March, the steel industry seemed to be picking up after witnessing consecutive price increases every month since December 2009.

Prices of scrap particularly, which is one of the metal’s key ingredients, were climbing along with the prices of other raw materials. And even though Middle East prices could not quite keep up with global trends, the steady price surge from US $490 per tonne in December to US $570 per tonne in March suggested a positive outlook for the future.

GCC-based steel suppliers were in fact praised for curbing the flow of Turkish steel into the country and securing regional growth.

But according to industry experts, this wasn’t the full story. Part of the reason for the increase was because in April, the world’s largest iron ore miners sought to negotiate pricing contract reform for iron ore, another key ingredient in steel, increasing the cost of the both materials.

According to steel producers, the fact that the prices for steel have since come down again, only proves the superficiality of price increases.

“Price variations for steel are like a mountain ride,” says Dinesh Nainani, general manager of Shakun Trading Company, a mid-sized supplier of steel products such as pipes, sheets and tubes.

“Prices started moving up in February, March and April, and then in May they started to come down again. One of the main factors affecting the price change was a change to the iron ore pricing structure from yearly to monthly which was laid down, which meant the price of iron ore went up. The demand wasn’t really there. Everybody knew that the increase in prices was artificial. If you talk to people in the industry, they all say that.”

He adds however, that, prices have begun to stabilise in recent weeks at a price of US $405 per tonne in the Far East, and that there is a good chance of industry growth again should the construction sector pick up.

“Prices are starting to return to an acceptable level, they have stabilized in the last ten days. But an increase in construction projects, and therefore an increase in the demand for steel, will depend on the amount of liquidity in the market. As long as liquidity continues to be a problem, there will be very few construction projects in this region.

“But once people start investing their money in the market again, demand will go up.” Until this time, he suggests that every link in the supply chain, contractors included, is at risk of being affected by high prices.