The outlook for the steel industry in the Middle East remains optimistic.
The International Iron and Steel Institute (IISI) in its forecast for 2006 says that the use of steel will increase due to global economic growth and rapid development in countries with high growth rates, such as India and China.
It is estimated that demand for finished steel products in the Middle East grew from 34.7 million metric tonnes in 2005 to 37.6 million metric tonnes in 2006 and will escalate to 40.7 million metric tonnes in 2007.
However, according to IISI, the cost of raw materials and energy will continue to represent a major challenge for the world steel industry.
Steel plays an important role in the vehicle industry. But in the absence of car manufacturing units in the UAE, it is a minor sector here.
Internationally, new steel technologies are giving better looks, performance and protection for cars. To make new steel alloys, metallurgical engineers are mixing different kinds of metals; for instance nickel with iron results in lighter, stronger and more flexible automobile bodies.
Richard Fruehan, a metallurgical engineer from Carnegie Mellon University in Pittsburgh, says, "These new steels have unique properties and are more resistant to corrosion. The use of these steels in automobiles reduces weight, which results in cars lasting longer and delivering better fuel economy."
Steel retains its vital position in the UAE's economy, as construction makes up a large portion of the nation's GDP. "Steel is a strategic industry in any young country's economic development," says Vikram Bhatia of Alam Steel.
Though the steel market in the UAE faced a slump in 1999, it has been on the rise since 2001, according to Harjit Singh Gouri of Alloy Steel Trading. "The steel market will keep growing over the next decade as steel is the critical raw material for all infrastructure development and construction activity which is on the rise in the UAE," he says.
Siddharth Balachandran, Managing Director, BUMGA Group, says, "Steel plays a significant role in the foundations of newly constructed buildings in Dubai.
"The high amount of load created by these structures can be withstood only with the support of structural steel in the form of large-sized beams and columns. Steel is considered to be a very optimal material due to its strength and ability to adapt."
Though the steel industry is not a major direct contributor to the UAE's economy, the construction boom here is giving it a much-needed boost.
"Since there are no local manufacturers, steel does not add to the local economy. But steel plays an important role in the development of the UAE, and its importance will continue to grow over the next decade," says Gouri.
The producers and suppliers of steel are benefiting from record global steel prices coupled with the high demand for steel locally. "Ongoing projects will continue to maintain high demand for steel over the next few years," says Asim Siddiqui of Age Intrade. He is of the opinion that the biggest threat to the steel industry is excessive capacity that may result in lower steel prices.
"Demand for steel can fall if there is a worldwide slowdown in economic growth," he says.
But there is no danger of that happening in the Middle East as it is among the fastest growing regions in the world in consumption of finished steel products.
"This is due to the record level of infrastructure spending currently in the region, particularly in the UAE. This demonstrates the role of the steel sector in the overall development of regional markets," says Siddiqui.
The steel industry is waiting for the outcome of Mittal Steel's takeover bid for Arcelor, two of the largest steel producers in the world. If the two companies merge, it will reduce the cutthroat competition in the global steel market, help control supplies and stabilise steel prices across the world.
"The steel industry is a very fragmented one, with even the largest manufacturers cornering a mere two to three per cent of the market. Globally, merger-related activities such as the Mittal-Arcelor deal will help reduce the volatility in prices," says Rajesh Kapur, a steel analyst based in Dubai.
"There has been substantial consolidation on the production side of steel in recent times. The negotiations between Mittal Steel and Arcelor are a prime example of this trend. This ought to make the industry more cost efficient and sensitive to changes in global consumption patterns," says Siddiqui.
The Middle East is also witnessing an unprecedented economic boom, which is resulting in huge infrastructure expenditure.
"The market is shifting from a change-resistant market to a change-friendly one. Slowly, the marketplace participants are beginning to understand the importance of upgrading technology and human capital," says Balachandran. "The marketplace, which was unresponsive earlier, is starting to react positively to changes in procedures and business processes. The market is beginning to mature in terms of basic business practices. A number of companies are also investing heavily in ensuring that a proper continuity plan is set in place."
Apart from construction, steel is also an important basic material used by the oil and gas industry. "High oil prices dictate further capital expenditure in oil exploration, extraction, and distribution facilities and equipment, all of which require steel to build," says Bhatia.
The outlook for the Middle East steel industry remains positive. In the last few months, there have been concerns about the downturn in international commodity prices, especially steel, mainly due to the imposing of import restrictions by the Chinese government.
"However, this trend has stabilised, and there probably will be a consolidation of prices at $550-$650 (about Dh2 ,021-Dh2,388) per tonne," says Balachandran, who believes that the worst is over. "There have been announcements for a slew of new construction projects and due to this, the demand in the steel market is set to grow exponentially not only in the UAE but worldwide," he says.
The future of the steel industry remains bright as Asia and the Middle East continue to grow economically. "It looks like steel consumption will go up about 20 per cent this year," says Bhatia.
The international trend in the steel industry has seen a move away from state-owned to privately owned enterprises focused on profitability and not output volumes.
"This has attracted tremendous investment in this sector and increased overall efficiency. Meanwhile, the UAE, like many other regional economies, will continue to be highly dependent on imported steel," says Siddiqui.