Builders could use a steel price break

Abu Dhabi builders have been hoping steel prices would soften after their sharp rise early in the year. Far from it. A report this week from the Statistics Centre - Abu Dhabi shows steel prices climbed another 11.6 per cent last month, worrying many at MEED's Arabian World Construction Summit in Abu Dhabi. "With all the plants that have been built in the GCC there should be an oversupply," said Michael Wolf, the technical manager for Strabag Abu Dhabi, the local office of the Austrian contractor.

"There is less construction going on so the price should be lower, but it's not." It is not a local phenomenon. World steel prices have been up since January. The growing Chinese economy helped to push steel production up 30 per cent in the first four months of the year. China, which makes its steel from iron ore, accounts for almost half of world production. When the three largest iron ore producers - Vale, Rio Tinto and BHP Billiton - changed their benchmark system for pricing last month, it made overall prices more volatile.

In theory, this could benefit Middle East steel producers, who use steel scraps as the raw material instead of ore. It means they can produce steel more cheaply yet sell it for high market prices. But steel prices may be due for a correction because demand has slowed within China, said Rita Guindy, a steel analyst at EFG-Hermes based in Cairo. Now producers will be facing a global margin pricing squeeze as China's decreasing demand will force Chinese steel producers to export. That will introduce more competition to Gulf producers.

Bad news for producers could be a rare break for steel importers and builders. They could use one. halsayegh@thenational.ae