Business | Markets
Steel price strengthens by 65% in six months
Steel price jumped by up to 65 per cent in six months from January this year, hovering around $585 to $615 per tonne on July 1, compared with $370 to $400 in January, market sources said.
- By Ivan Gale, Staff Reporter
- Published: 00:00 July 11, 2006
Dubai: Steel price jumped by up to 65 per cent in six months from January this year, hovering around $585 to $615 per tonne on July 1, compared with $370 to $400 in January, market sources said.
The high price for steel and other raw materials continues to hit the manufacturing and construction industries, sending real estate prices creeping upwards.
Prices for steel, the most essential building ingredient, increased each month this year.
Hot rolled coil, a commonly followed steel commodity, reached a range of $585 (Dh2,152) to $615 (Dh2,262) a tonne on July 1, according to MeSteel.com, a website tracking the Middle East steel market, compared with $370 (Dh1,361) to $400 (Dh1,471) a tonne in January.
"It's like the commodities market all over world. If you look at zinc, aluminium, oil, everything has gone up over the past year. Steel is just following the trend," said Karel Costenoble, general manager of MeSteel.com
Adel Lootah, executive director of Dubai Property Group, a non-profit real estate association, said high prices of raw materials have distributed profit margins more evenly through the industry.
"The developer knows it can't sell higher than X amount, and the construction company knows it change more than X amount, too," he said.
Most contractors in the UAE build projects on a fixed-priced contract basis. A surge in material cost hurts their bottom line badly, as the profit margin on real estate projects average between 3 to 5 per cent.
"The days of lush profit margins are history," said Rakesh Chandola, general manager of Memon Real Estate.
This has forced construction companies to become more efficient with equipment and personnel ? while some might also cut corners by using lesser grade materials, he said.
High demand in Asia, Europe and North America continues to be the main driver in the price escalation, with Middle East demand having a negligible effect, said Costenoble.
Steel mill consolidation is putting control in the hands of a few, adding to the price hike, he added.
Some local companies have launched extensive searches for cheaper prices, opting for the added headache of looking globally for steel deals than relegating themselves to the painful pinch of local prices.
One company looking abroad is Belleli Energy, an Italian company located in Abu Dhabi producing desalination plants. The company spends Dh10-Dh15 million ($2.7-$4 million) buying more than 1,000 tonnes of steel a year.
Senior buyer Fuziel Patankar said his company sometimes purchases directly from mills in Italy for prices 20 per cent lower than in the UAE.
While costly to ship, buying abroad gives them some relief from the high prices. "A few years ago it was a buyer's market, but now it's a seller's market," he said.
While the prices continue to inflict hardship, experts say the price rise is more gradual than last year, when a sudden rise in prices spread panic throughout the industry, creating demand that drove prices further skyward.
Costenoble believes prices will soon level off, but he's making no promises. "Everybody has nice theories, and most of them will have to explain in a month why they were wrong."
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