Steel suppliers fear repeat of 2008 price hike

Product traders hunker down in the squeeze as domestic demand declines

Companies are no longer looking to stockpile, say suppliers.
Companies are no longer looking to stockpile, say suppliers.

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The spike in steel prices following renegotiated contracts by the world’s largest iron ore miners has spooked UAE suppliers and traders into fearing a repeat of 2008.

Increases of up to AED 1,000 per metric tonne on the back of changes in pricing have disrupted building projects and created an imbalance in supply and demand for local steel companies. Last week prices in Dubai and Abu Dhabi rose to AED 3,300 and AED 3,000 respectively by Thursday, up from around AED 1,900, according to Reuters data.

Dinesh Nainani, general manager of Shakun Trading Co LLC, a mid-sized supplier of steel products such as pipes sheets and tubes, said that although no customers had yet to back out of a contract with the firm, they were only buying what they needed, rather than stockpiling as before.

“What has happened is that people were not ready. Some are scared as they fear the same thing will happen as the price rises between March up to June 2008 – just before the recession hit.”

M J Jacob, manager of Age Intrade, a Dubai-based trader, said projects that had negotiated costs of steel two or three months ago and would have been starting work now are being delayed 'automatically'.

“Market prices will affect the supply chain as the price is based on last year’s quotations,” he said. “Given the high price we are not taking any more bookings [for importing to sell domestically] now. We are more cautious.”

He added that the company - which supplies to building, mechanical and some fabrication companies and exports a quarter of its produce - would review the situation over the next two months. He was broadly optimistic of a price stabilization after that time. “There will definitely be a stabilization of prices, though we will know better in two-to-three months’ time.”

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