Ajay Aggarwal, CEO of RAK Steel, said the original plan was to have the new facilities up and running by the end of this quarter. “But it will now happen only by the end of 2009,” he said.
He told Emirates Business the slowdown in construction across the GCC and the UAE and an excess availability of steel in the UAE were the primary reasons.
“Right now the demand for steel in the region, especially in the UAE, has dropped dramatically. This industry is closely related to construction, which is in a state of restructuring because of the financial crisis. Until that gets sorted out and the construction industry starts working again, all other associated industries will get affected,” he said.
Located in Ras al Khaimah, RAK Steel, a joint venture of Ras Al Khaimah Investment Authority and Middle East Traders Group, is the second largest producer of steel rebars in the UAE with a capacity of 500,000 tonnes per year. It started operations in January 2008 with an investment of $15 million (Dh55m). “Since then we have put up about 250,000 tonnes of steel in the market,” said Aggarwal.
The company has a rolling plant and a melt shop in Oman. “It is an integrated steel operation there. It is our first venture in steel manufacturing and we are doing well,” he said. “We are on our projected targets. We had planned for about 150,000 tonnes of steel production from the Oman plant but we did about 250,000 tonnes.” Both the facilities put together have a capacity to produce almost 800,000 tonnes of steel annually, he said.
“We do have expansion plans but we are going slow on it,” said Aggarwal. “Our plan was to both increase the capacity for rolling and do backward integration and set up a melt shop. We had plans to increase the capacity by almost 50 per cent,” he said. “Last year, between the two companies we produced about half a million tonnes.”
According to Aggarwal, in Dubai and the Northern Emirates alone, consumption has fallen by about 2.5 million tonnes from the 2008 figures of around 5.5 million tonnes of rebar. “Our estimate is the figure will drop by at least 50 per cent in 2009,” he said. Meanwhile, steel demand from the Gulf states’ construction industry could fall as much as 35 per cent in 2009.
Prices of steel have fallen by almost 70 per cent since July 2008. And the prices of rebar dropped from its high $1,500 CFR levels in August to hit a rock bottom but will experience less fluctuation and volatility during the coming months, he added.
“We believe steel prices are bottomed out and the prices will witness a gradual increase this year. Volatility is low now and we should be able to see some improvement in price from quarter to quarter,” he said. “There is still an over-supply of steel at present and it is likely to continue for a conceivable future. However, at the same time imports will get reduced.”
Meanwhile, the UAE demand for imported steel will fall considerably as traders and customers from the construction sector will opt for locally produced rebars, he said. Again, regional players will have a higher marketshare compared to imports. “So there will be a restructuring of marketshare. There are obvious benefits of buying locally: your purchase cycle levels come down, your inventory levels can reduce and your flexibility increases. So the regional market shares will go up and imports will fall,” he said.
Right now Turkey is a major exporter to the UAE but according to Aggarwal, the situation will soon change. “We strongly feel their shares will dramatically reduce,” he said.
Meanwhile, Middle East buyers are said to prefer purchasing from local makers or distributors. At the same time, for similar reason, CIS steelmakers lowered their billet price of March production to $380 to $390 per tonne from earlier $400 to $410 per tonne but are still failing to attract more orders.
On the recent statement by construction experts that steel would be increasingly used in place of concrete due to falling prices, he said: “Material being used for construction may partially change from concrete to steel structure. It is a possibility. There are some such trends in the world. However, there is a lot of development happening even in the cement and concrete side. Eventually, what will be the personal choices of architects in the future is difficult to say. We will have to wait and watch,” said Aggarwal.
The construction industry, according to him, will start running again only after the consumer confidence increases and that will happen only when several of these factors including the financial crisis are resolved.