As the Middle East's urban topography is transformed by an unprecedented construction boom, the demand for steel rises.
Due to the burgeoning growth of large-scale infrastructure projects, the demand for steel in the GCC and particularly in the UAE shows no signs of slowing. According to Fahad Chaudhry, Marketing Manager of SIT Limited, "In the West, steel is referred to as the sunset industry whereas in developing countries, the sun is still rising."
In fact, steel demand in the GCC is set to reach an unprecedented 30 million tonnes in the next three years. In the Emirates, it is estimated that between three and four million tonnes of steel are utilised annually.
"The UAE is the most steel intensive country on the planet," says John Short, Executive Director, Steel and Base Metals of the Dubai Multi Commodities Centre (DMCC). "The UAE has an average of 1,700 kilograms per person being used compared to a global average of approximately 200 kilograms. We even outstrip our closest rival in the Arab world, Qatar, which has a yearly average of approximately 1,000 kilograms per person."
As a raw material, steel is highly versatile. Asim Siddiqui, Managing Director of Age Intrade LLC, says, "Prominent sectors where steel is used include the shipbuilding industry, the oil and gas sector and marine engineering."
Rebar and reinforcement
In Dubai, however, steel's primary use is in the construction industry as reinforcing bars (rebar). Siddiqui says, "This steel product boasts fundamentally crucial roles such as the reinforcement of concrete structures and providing structural support."
For example, for the construction of Burj Dubai, 31,400 metric tonnes of rebar have been used in many of its structures, including the tower, the podium and the office annex.
According to the International Iron and Steel Institute, world crude steel production reached 1,343.5 million metric tonnes (mmt) last year with China, Japan and the US accounting for just over half of the total global production.
Steel central
However, given the mammoth demand for steel in the UAE, production quantities here remain insufficient. Says Short,
"Abu Dhabi claims to produce three quarters of a million tonnes but in reality it only produces 100,000 tonnes. The rest is made in Russia, Ukraine and Brazil and merely processed in Abu Dhabi."
As a result, the UAE is an import-driven steel market with imports exceeding five million tonnes per annum, two-thirds of which is rebar steel.
"Steel is imported from Turkey, Qatar, Saudi Arabia, Iran, Europe and the Asia Pacific region," Siddiqui says.
However, Dubai's central location between the two key
global steel trade routes ensures that it has a further role to play in the Gulf's steel market.
Steel required in Bahrain and Qatar is generally imported into Jebel Ali, the region's best-equipped port and so indirectly Dubai becomes a beneficiary of the steel industry that exists in neighbouring countries.
Accelerated production
While, steel output remained high, last year did experience a small decrease in the growth rate in nearly all the major producing countries and regions including China and the US. The exception was in the Middle East, where production growth accelerated during the second half of the year. This production trend gave merit to claims in a Gulf Investment Corporation report that crude steel production in the Middle East will increase by nearly 70 per cent, from 15.4 million tonnes in 2006 to 26 million by 2010.
This is truly good news for the construction industry, which has already had to withstand the dramatic soar in the price of rebar from Dh2,300 per tonne to Dh5,000 per tonne
in the past few months. "There is a cost push factor" claims Short. "The iron ore price which is the basic raw material for steel manufacture has gone up by 65 per cent and the metallurgical coal price has risen by 200 per cent."
Short says, "This factor alone has resulted in a $200 (about Dh734.62) per tonne mark-up on steel overall. It has also resulted in the cost of iron and steel scrap shooting up from $430 (about Dh1,579) to $730 (about Dh2,881) in the past year."
Even more influential to the rising prices are the actions of China, statistically the world's major player in the steel manufacturing industry. Last year the Chinese government placed an export tax on several types of steel products. This has resulted in rebar that costs $850 (about Dh3,122) per tonne in China having a mark-up in price of almost 200 per cent when exported.
"Exports from China have dropped from 7.5 or 8 million tonnes a month to approximately 4 million tonnes a month," explains Short, "There is a huge supply shortage in the world market due to these trade barriers even though there is no real manufacturing shortage."
Furthermore, China's pivotal role in the steel global market does not look as if it will weaken. According to Siddiqui, "The industry is expected to become less fragmented with major mergers and acquisitions. It is expected that China and Asia Pacific will continue their dominance."
However, for construction companies concerned by steel's volatile prices, DMCC's subsidiary company the Dubai Gold and Commodities Exchange (DGCX) offers help. Their financial tools ensure that the price of steel on the open market becomes irrelevant as the insurance guarantees that the cost of steel remains fixed.
Short says, "The Rebar Futures Contact is like a steel price insurance which allows DGCX to take the risk away from using steel, thus allowing companies to manage the impact of the fluctuating cost of steel on the global market."
The stability of the steel industry impacts massively not only on a country's infrastructure development but on its economy. As Chaudhry of SIM Ltd says, "Steel is fundamental to the building boom and there would be little or no construction without this raw material."
Essential to the economy
In fact, steel is already crucial to Dubai's economy where a great number of steel-reliant mega projects such as the RTA Metro and Burj Dubai are under construction. And
with more than $1 trillion worth of mega projects in the pipeline, the region's demand will undoubtedly remain high. As Siddqui says, "The steel industry is likely to grow in the UAE, in the next couple of years, whether prices rise or fall."
FACTS AND FIGURES
- 30 million tonnes is the amount of steel that the GCC region is expected to need in the next three years
- 70% is the increase in crude steel production in the Middle East from 15.5 million tonnes in 2006 to 26 million tonnes by 2010
- 4 million tonnes, the drop in exports from China per month from 7.5 or million tonnes a month
