Construction steel demand tumbles

The drop in demand has coincided with a fall in the price of steel, an important component in construction.

Steel exporters to the UAE are seeing weaker demand as banks tighten lending for construction projects. The drop in demand has co-incided with a fall in the price of steel, particularly for steel reinforcement bar (rebar), which is priced about Dh1,652 (US$450) a tonne after peaking at Dh6,000 a tonne in July, according to figures from Mesteel.com. The price of steel plates and beams has also dropped by about 15 per cent, according to Ahmed Heiba, a sales engineer for Dubai and the northern emirates at Zamil Steel, a Saudi Arabian steel producer.

"Prices have come down but demand is also coming down because there is no cash - banks don't want to finance any new projects so there is no demand for steel to begin new projects; it's all about credit," he said. "We have a tough period ahead, which will last for maybe four months, but we expect things to return to normal after that. For now, we're just trying to survive." Rajhi Steel, another Saudi Arabian steel producer, has also experienced a slowdown in demand in the UAE market.

"Everybody is affected by the slowdown but we're optimistic that in 2009 the market will gain stability, but not until after the first quarter," said Ahmad Nazal, the company's marketing manager. "But it's the steel traders and contractors who have most of the problems, rather than producers. As a producer, when we see the market slowing down, we just slow production." While the sharp price decline for rebar has come as a relief to contractors, producers face an oversupply, fuelled by speculators who bought the product when prices were at their highest, but with no backup orders.

"The high price of rebar was a direct consequence of speculation and had a limited economic background," said Johan Schepens, the Middle East head at Arcelor Mittal Solutions. "People thought they could make a quick buck. So they bought rebar, and anticipated to sell at high prices in a market like the UAE but without the backup of end-user orders. This was mainly financed with bank advances and now the time has come to pay those loans back."

Mr Schepens added that the company was still taking orders, especially for structural steels, but steel buyers were being more careful. "Demand is still there, but the phenomenon you have now is the huge stock because of the speculators." Mr Nazal added that the company also faced competition from new providers of steel to the UAE, such as China. "This market is open, and in an open market the challenges are harder," he said. "China is a threat, but as newcomers they will need a few years until they prove themselves to be suppliers of high-quality steel."