The market for steel in the UAE looks better than ever.
Steel is a major driver of growth for a country's economy. According to a study done by the Economics and Strategy Division of the Gulf Investment Corp. (GIC), steel demand in the Middle East is expected to increase from 70 million tonnes in 2007 to around 90 million tonnes in 2010. The GCC steel demand will be in the range of 20 to 30 million tonnes during the same period. In the Arab world, the UAE has the highest per capita consumption of steel at 801kg. Currently, the demand for steel in the UAE is expected to be between three to four million tonnes a year.
Dr David Rutledge, Chief Executive Officer of the Dubai Multi Commodities Centre (DMCC), says: "The steel and iron industry in the Middle East has witnessed significant growth in recent years, with a 41.5 per cent increase in the production of steel between 2000 and 2005."
A leading consumer
"Driven by the increase in huge infrastructure projects in the region, the GCC states are also among the leading consumers of steel and iron products in the world today. Individual consumption in the GCC states reaches over 378kg of steel per person annually, against the global average of 182kg," adds Rutledge.
In another report, the GIC has said the crude steel production in the Middle East is projected to increase by nearly 70 per cent, from 15.4 million tonnes in 2006 to more than 26 million tonnes by 2010.
The UAE imports steel primarily from the Ukraine, Turkey, China, South Korea, Japan and India to name a few. The steel demand in the region is dominated by long products, most of which are used in construction.
Says John Short, Executive Director, Steel and Base Metals, DMCC, "The UAE imports 5-6 million metric tonnes of steel per annum (mmpta). Of this approximately two-thirds is the reinforcing bar (rebar). The most important sector of steel consumption is the construction industry, which consumes more than 3.5 mmtpa of rebar alone, plus 1 mmpta of other steel products." As per reports in Gulf News, rebar output grew from 14.1 million tonnes in 1997 to 21.6 million tonnes in 2004, and is expected to reach 28.9 million tonnes in 2010.
Asim Siddiqui, Managing Director of Age Intrade LLC, says: "The other prominent sectors where steel is used include the shipbuilding industry and truck bodies, the oil and gas sector (pipe lines, oil rigs and refining plants), marine engineering and in warehouses. Rebars are mainly used for civil construction."
Compared to the global steel market, which is around 1.2 billion metric tonnes per annum, the Middle East market is rather small.
However, as Short says, "the UAE as a country happens to play a pivotal role due to its strategic location at the crossroads of steel's two dominant trade flows. One trade flow is out of China and heads west past India and Dubai to Europe.
Pivotal role
"The other originates from the Black Sea and heads east past Dubai and India to Asia. Jebel Ali is the single largest steel import port along that trade flow, and is, therefore, of critical importance, both as tonnage and pricing points, to all participants engaged in these two steel trade flows," says Short.
Players in the regional market believe that the current construction boom in the Gulf will lead to an increase in demand for steel.
As Siddiqui says, "The steel industry is likely to grow in the next couple of years in the UAE irrespective of whether prices will fall or rise.
"There are a lot of projects being announced in the next few years that will require a lot of steel and concrete. So there will be no slowdown in growth."
The government is also encouraging to set up steel industries as well as expand them with developments such as Dubai Industrial City and Dubai Investment Park. These projects provide a business-friendly climate with state-of-the-art facilities. Currently, the UAE does not produce any crude steel. Rather, the country imports finished steel or semi-finished steel for subsequent processing into finished steel products.
Says Short, "In Abu Dhabi a 1.5 mmtpa steel plant is being built and production will start from 2009. The UAE is also greatly enhancing its steel processing power. Consumption is not expected to increase dramatically in the next few years since we are already well on our way to a sustainable maximum of six to seven mmtpa."
Government policies
According to Vikram Bhatia, Director of Alam Steel, "With oil prices so buoyant, the country will continue to develop its infrastructure for exploration, extraction and distribution of oil, all of which requires steel. Also, the country's business friendly policies are the key to its success.
"A couple of years back the government helped the construction industry by allowing rebars to be imported without paying the five per cent customs duty for a period when international prices started to escalate, which showed that they were willing to help developers."
Increasing demand
With more than $1 trillion (about Dh3.67 trillion) worth of infrastructure projects in the pipeline, there are no indications of any let-up in the region's demand for steel in the near future. And as a result of this expected growth, many business houses have announced brown-field as well as green-field expansion programmes, which will subsequently increase the steel making capacity of the region.
With demand outstripping supply, the regional steel working industry has been left with no other option but to expand its existing capabilities in the process, resulting in a huge demand for steel fabrication, machinery, equipment and consumables.
Such is the demand that many global suppliers to the steel working industry now consider the Middle East to be the most lucrative market.
According to a report in the Metal Bulletin Research in its December 2006 issue, finished steel products capacity will increase by 46.7 per cent from 22.9 million tonnes in 2006 to 33.6 million tonnes in 2010.
Reports in the media have said that the GCC countries are currently negotiating to sign free trade agreements with China and India. Such agreements are likely to have a great impact by inducing more imports of finished steel products to the GCC market, mainly from China.
Global interest
The world steel market is showing increasing interest in the construction boom in the UAE and the country is doing its bit to sustain this interest.
According to Short, "Dubai's construction boom is at the epicentre of the regional construction boom. DMCC has complemented Dubai's existing time zone and tax efficiencies to provide a series of services that encourage steel companies to establish their local, regional, and in some cases, global head offices in Dubai.
"Also, taking advantage of rebar's commodity market behaviour, DMCC has worked closely with Dubai Gold and Commodities Exchange (DGCX), its subsidiary company, to develop the world's first Steel Rebar Futures Contract. This will enable companies threatened by volatile steel prices, especially rebar and other price-correlated steels, to hedge their price risk.
"Hedging with Commodity Futures can greatly mitigate large elements of that price risk, providing scope to fix steel costs out into the future, even if the underlying steel price remains volatile," says Short.
