Insiders deny black market steel trading - Emirates24|7

Insiders deny black market steel trading



The head of a leading building materials company has denied there is a shortage of steel and the existence of a black market in the metal, despite the recent rise in prices. “There is still no shortage in the steel market but you have to pay the high prices,” Rizwan Sajan, Chairman of UAE-based Danube Building Materials, told Emirates Business.

“There is also no black market because availability is plentiful. Whatever quantity you want is available, it’s just that the price has become inflated. But in the case of the cement sector, even if you want to pay the price, supplies are not available. So then the black market comes into the picture.”

Sajan said the price of steel has climbed by about 40 per cent since the beginning of 2008 from Dh3,000 per tonne to Dh4,000. The current price is a 60 per cent increase on last year’s average price of Dh2,500.

Figures from Dubai Chamber of Commerce and Industry (DCCI) show that the price of steel has increased almost 14 times in five years.

“Steel suppliers have taken big losses because a lot of us agreed contracts at Dh3,000 and now it is trading at Dh 4,000,” said Sajan. “But whatever I have lost on a particular contract I can make up in others contracts. Prices usually remain valid for three to six months.”

But some industry figures say those purchasing steel are facing problems – including a burgeoning black market in the commodity, as previously reported.

One trader said: “Many suppliers won’t sell if you are asking for less than 300 tonnes and some have much higher minimum for orders. So if you are a small contractor you are facing problems.”

And another source, who asked to remain anonymous, said there was a worldwide shortage. He added: “The steel industry must now strike a fine balance between short-term profitability and long-term sustainability. Global and regional demand has risen to such an extent that the steel shortage is now delaying construction.”

According to MEPS, a consultancy operating in the worldwide steel sector, prices were driven up by rising costs and limited supplies. It forecast that global steel prices were set for double-digit per centage hikes this year.

The report said the current steel situation had compelled some Middle East companies to reschedule the delivery of projects.

Mohammed Al Zamil, Chairman of Zamil Group, said: “The spiralling price increases of several important inputs such as steel, copper and aluminium have definitely affected us.

“We are sometimes even faced with a contrasting situation where input prices have gone up but the prices of corresponding output products have seen a downward trend. This affects our competitiveness and therefore profitability. As our operations come under pressure from both suppliers and customers, our cycle takes a beating and cash management becomes crucial.”

The soaring price of steel spells trouble for the regional construction industry. As early as 2006 a severe cash crunch was forecast, which may lead to forced mergers of contractors.

Demand for steel in the UAE was 3.5 million tonnes in 2006, according to a report from the Gulf Organisation for Industrial Consulting. It said demand for iron and steel products in the region, where infrastructure projects worth $1 trillion are in the pipeline, would climb by 31 per cent to 19.7 million tonnes by 2008.

To alleviate the pain caused by rocketing prices customs duties on cement and steel were last month lifted across the UAE.

The efforts of the GCC nations to diversify their economies away from oil and natural gas and the availability of considerable monetary surpluses have led to a boom in investment.

Major investments are taking place in petrochemical complexes.

The Gulf Organisation for Industrial Consulting (GOIC) says the natural advantage of comparatively low energy costs is being leveraged in setting up metallurgical units for the production of aluminium and steel, which have high energy usage.