The sudden steep fall in the price of steel is a temporary development and will last only until October, say construction experts.

The entry of new players into the steel trading business and speculation were the major causes of the sudden decline, they added.

The price of steel in the UAE has dropped by almost 20 per cent during the last three weeks – a dramatic reversal of the increases seen during the first two quarters of 2008.

Yesterday, steel was trading at $1,400 per tonne compared with almost $1,700 in July. But Essan Atef, Procurement Director at Al Shafar General Contracting in Dubai, told Emirates Business the prices were bound to return to their former levels after Ramadan.

"At least 26 new traders have started trading in steel in an effort to make quick money," he said. "Steel prices increased until last month, which attracted several new traders and speculators into the business. But most of these new entrants have no adequate storage facilities and are keen on getting rid of their imports at the earliest possible moment.

"An oversupply of steel in the UAE market thanks to a flurry of imports, especially from Turkey, coupled with a slowdown in construction activity due to the extreme summer temperatures have played a role in bringing steel prices down.

"We are talking about people who have invested not just hundreds of thousands but several million. They want their money back and so are willing to sell it with a reduced margin."

Atef said the reduction would have little impact on the overall cost of construction in the UAE.

"There is a lull in the construction industry that will continue until the end of Ramadan," he added.

"The real impact will only be visible if the price fall becomes a long-term phenomenon. If it lasts for the next two years there will definitely be a difference.

"We buy our steel directly from factories in Turkey and have been told that bookings for October and November are already being made at the rate that existed two to three weeks ago."

Steel prices in the UAE rose dramatically by almost 10 per cent in July when a tonne of reinforcing steel bars used in construction fetched around $1,700, up from around $1,550 in the middle of June.

Hisham Abdul of Cairo Contracting, one of Dubai's smaller contracting companies, said: "Some experts feared that the price would shoot up to $2,000 per tonne during August but exactly the reverse is happening. We only hope that the trend continues. Unlike large contractors we are affected most by rising construction costs. We have been struggling to meet the targets and are asking developers to absorb the cost."

Atef said the government could do little to control steel prices as most of the UAE's consumption was produced abroad.

"The government's commitment to keep construction costs down was very evident when it took measures to bring down the price of cement. Today, despite a marginal hike, the cement price is well under control. It is steel and diesel that is playing a major role in pushing up costs."

A senior official at Danube Building Materials, which deals in construction materials including steel, glass and timber, said traders expected the price of steel to return to its former level once the speculators disappear.

"We cannot say anything definite, though, it is all based on supply and demand. Today the market is overcrowded and that is the reason prices have crashed."

He said many companies were hoping prices would fall further before they bought supplies.

"There was an Omani buyer who placed a purchase order worth millions at $1,500," he said.