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"Steel prices surge, again" - now there's a headline that's probably caused a fair number of sleepless nights.

COMMENT, Materials

"Steel prices surge, again" - now there's a headline you'll be more than familiar with, and one that's probably caused a fair number of sleepless nights.

Contractors have had reason to lament over the last few years, with the rise and fall of prices in the steel market pretty much dictating a project's budget.

Some have come up with ways of trying to shield the often brutal price hikes, such as forging better relationships with suppliers or even daring to negotiate a ‘price escalation' clause into their contracts.

 

But more often than not, the only way to cushion the blow has been to factor price rise risk into their bids, while the more wayward contractors out there have been sourcing cheap, substandard products on the ever-faithful black market as a means of survival.

Burgeoning markets in other parts of the world have also placed a greater pressure on steel supplies in the Middle East, jeopardising project schedules and leading to cost overruns.

So the introduction of a mechanism that will ensure price stability for the duration of a project, along with the necessary supply of steel, can only be a good thing.

The steel industry has long resisted attempts at anything approaching price transparency, but the rebar futures contract to be launched on the DGCX at the end of October - and the first trading platform in the world to offer an internationally accessible facility for steel - could defy all pessimism.

Buying a futures contract will set a fixed price for rebar - protecting contractors against price fluctuations for the duration of a project - and will ensure ongoing supply.

The tool will also benefit producers, as it means they can predict demand easier, and will be protected if the price of rebar falls.

But probably the most crucial benefit is that all rebar traded through the exchange will have to meet high quality standards - hopefully squeezing the dodgy suppliers out of the market.

The only real challenge then will be to make sure people in the construction industry fully undertstand how the futures contract will work.

And in a region where inflation is high, this could eventually put them in a better position to bid for work.

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