Consumers may soon feel the pinch from high steel prices as the rising cost of the alloy squeezes retailers of watches, appliances and other goods.
Thomas Dotzek, the senior general manager of Al Futtaim Watches and Jewellery, said its steel-related costs had risen between 5 and 10 per cent in the past six months. "The whole watch industry is suffering from it," he said.
The price of steel has soared on the back of rising iron ore prices caused both by demand from China and the recent flooding in Queensland, Australia, said Judy Hui-Zhu, a commodity analyst with Standard Chartered. Queensland produces about half the world's seaborne coking coal, a key component used to produce steel. Mining facilities there have been destroyed and it will take time before production is up to full capacity, she said.
"Globally, we expect steel prices in key regions, from the US, Europe to China, to rise throughout the year and the price rally should be more decisive towards the end of the year when the recovery becomes stronger," said Ms Hui-Zhu.
This does not bode well for retailers of products such as air conditioners and refrigerators that use steel components.
Deepak Babani, the chief executive of the Dubai-based Eros group, which sells electronics and appliances, said rising steel costs and higher prices for plastic and copper would force retail prices up by 7 to 10 per cent.
"What we're trying to do is spread it out over a period of time," he said. "We want to see that the impact is minimised."
But watch retailers say they cannot pass on the added expense to consumers, who continue to be budget-conscious.
"We have to raise it, but the majority of the price increase we have to absorb ourselves," said Mr Dotzek. "The market it is not ready to take it yet."
Naved Shaikh, the divisional head for watches with Al Sayegh Brothers in Dubai, said its profit margins had been eroded. And with increased competition in the retail market, he added, it could not push up its prices easily.
"It's a consumer-driven market now," he said. "Even if it's a quality product, and with good pricing, the customer is still standing at the counter asking 'what else'?"