Abu Dhabi steel prices fall for third month in row

Steel prices in Abu Dhabi plunged by up to 31 per cent in October for the third month running as construction appears to be the latest victim of the fallout from the global financial crisis, official data showed yesterday.

Cement prices also fell by about eight per cent for which the report cited the repercussions of the global financial crisis, sliding oil prices, accumulating steel surpluses in the local market and other factors.

It was the third successive month that steel prices reversed an upward trend and recorded large declines following a 91 per cent jump in the first half of the year, according to the Abu Dhabi Department of Planning and Economy (DPE).

"There was a remarkable drop in prices of building materials in the emirate in October. This was specially noticeable in the prices of steel (flat steel, beam steel, angled steel, steel bars and high-tensile steel), which fell by eight to 31 per cent during that month," DPE said in its monthly building materials index.

The report showed the average price of Turkish flat steel declined by about 10 per cent to Dh 4,325 per tonne from Dh4,800 per tonne in September.

The monthly indicator also showed a decrease in the average price of Turkish beam steel from its September level of Dh5,200 per tonne to Dh4,575 per tonne in October. Over the same period, home-made steel bars plummeted by nearly 23 per cent to Dh3,825 per tonne, while Turkish high-tensile steel registered the largest decline of 31 per cent from Dh4,438 to Dh3,075.

"According to vendors and suppliers, the decline was due to both global and domestic factors. They include the accumulation of surplus quantities of steel as a result of the global financial crisis and the recession that some major economies are going through," said the DPE study.

"Sliding oil prices have also lowered shipping costs and this, coupled with the drop in the price of iron ore, have in turn led to reduced cost of increased supply of steel production in local markets."

Another factor cited by the report was that local traders inundated the market with large quantities of steel as they feared there would be storage difficulties. "The quantities were purchased earlier in anticipation of further rises in steel prices, compared to those of the second quarter of this year."

The report said the decline in steel prices was accompanied by similar drops in the prices of cement, which dipped by nearly eight per cent.

"However, the index has shown an eight per cent rise in the price of bitumen compared to the average for September. It should be noted that the prices of some commodities (such as white cement, cement blocks, ceramic tiles, glass and different types of paints) have remained stable during the past two months," the report added.

The decline in steel prices in the past three months followed a surge of 91 per cent in the first half of 2008. Cement prices also leaped by about 42 per cent as the emirate is pushing ahead with major construction projects, which were worth nearly Dh880 billion between 2004 and 2007, and are expected to top Dh200bn this year, according to semi official estimates.

Despite the decline, prices of most construction items have remained far higher than their level two years ago, according to the DPE report.

The surge in the prices over the past two years has been caused by a sharp rise in international prices and high growth in domestic construction activity that has sent local consumption of such materials to one of its highest levels.

Despite a steady expansion in domestic production of steel and cement, the sharp growth in consumption has largely widened the emirate's imports of building materials and consequently pushed up prices.

In a recent study, DPE said the construction upswing has sharply boosted demand for building materials, with steel consumption soaring by about 24.5 per cent annually over the past three years. It put domestic demand at about 2.11 million tonnes in 2007 compared to 1.69 million tonnes in 2006.

Steel production also increased by 24 per cent annually from nearly 383,000 tonnes in 2003 to 830,000 tonnes in 2007. It is expected to peak at about 1.5 million tonnes by the end of 2009 when two new steel plants are commissioned.

DPE started its first regular index for building materials five months ago following the launch of a food price index. The department said both indices are designed to eliminate widespread market manipulation and prevent sharp price rises.