Sooner than later, I maintain, the ill logic will correct and economics will prevail.

Ajay

Well  the  question in everyone’s mind currently  is which way rebar  prices will go in UAE?

My take in the matter is that :

1. Demand has been steady for the last few months and is not expected to widely fluctuate either way for the next quarter or so.
2. Their is sufficient clarity as to which projects are on and funded.
3. Producers and traders are 95 % plus de – stocked of surpluses from last year
4. Local availability of rebars has reduced procurement cycle there fore they are able to maintain minimum levels of stocks
5. Oil prices have risen to a reasonable band of around USD 70
6. Iron ore prices have been negotiated between major buyers and sellers.

Based on logic and economics rebars prices , in my opinion , should therefore be around USD 600 soon. The spoil sport is Turkey with very high production levels and no steady market as Europe is still in deep recession. The UAE market is now more and more biased towards local producers. But I believe they cant play the price game for too long as their production costs are no different than others.

Rebar prices should rise sooner than later.

Ajay

We expect the prices to firm to reasonable levels

In my last blog I had mentioned that the market shares between imported rebars and local rebars will reverse to the advantage of the regional players. I have received comments to clarify this  statement.

Well the regional players have the following advantages

• delivery time half – therefore traders price fluctuation risk reduced
• rebars are manufactured in 8 major sizes. Regional players have the flexibility of accepting size changes at short notice on pending orders or fill spot orders. This helps the traders to meet end customer demand better with lower inventories
• chances of steel getting discolored reduced as it is supplied to customer as it is produced. Customers in UAE like to receive blue steel.
• Regional players have substantially increased in capacities and can compete on prices with other international producers.

Ajay

The construction supply chain – Property Developers, Contractors, Building Material and Commodity Suppliers, Bankers, Consultants represented by top executives were represented by senior management in the forum.

With respect to Steel industry the key points I made were that:

1. The per Capita consumption of steel in UAE in 2008 at approximately 1500 kg compared to world average of around 300 Kg was unsustainable in the long run. The current recession shall see correction of this consumption pattern of UAE to more realistic levels.Even then it will be in the high quadrant.
2. The market share in UAE of imported steel( 70 % )and UAE producers(30 %) 2008 and prior will reverse rapidly in favor of regional players due to obvious reasons.
3. The consumption of rebars in UAE during 2009 will be around 50 % of 2008. The biggest drop in consumption will be contributed by Dubai.
4. It was also suggested that the 5 % import duties which was removed in March 2008 be reintroduced to eliminate speculators from the scene.Such a step will bring price stability into the market and should not be viewed as protectionist.Consumers of building materials also need not be unduly concerned that prices will go up as there is production capacities are substantially underutilized and likely to remain so for foreseeable future.Price stability, in my opinion, is always a better choice for all stake holders. 
5. There is still scope of prices correcting as critical raw materials prices are under negotiations with major world steel producers and likely to substantially reduce compared to last year.

Some  press coverage of the event follows:

“RAK Steel” (UAE press)

Call for reimposing customs duty on cement and steel
Emirates Business, – Mon, 23 Feb 2009 22:50
Words matched: RAK Steel
UAE cement and steel producers say the time is right for the reintroduction of customs duty on imports in an effort to protect the interests of local manufacturers.
…July 2008 to $490 per tonne. Ajay Aggarwal, CEO of RAK Steel, said the government decision to reintroduce the tariff will discourage…

RAK Steel expansion on hold
AME Info, – Sun, 22 Feb 2009 12:27
Words matched: RAK Steel
United Arab Emirate: 9 minutes ago RAK Steel has postponed the expansion of its facilities until the end of 2009 due to the slowdown in the regional construction sector, according to Business24/7.
…RAK Steel expansion on hold United Arab Emirate: 9 minutes ago RAK Steel has postponed the expansion of its facilities until the end of 2009 due…

RAK Steel expansion postponed
Emirates Business, – Sun, 22 Feb 2009 01:09
Words matched: RAK Steel
RAK Steel has postponed its planned capacity expansion in the UAE to end-2009. 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.
…RAK Steel expansion postponed RAK Steel has postponed its planned capacity expansion in the UAE to end-2009. Ajay Aggarwal, CEO of RAK…

RAK Steel receives CARES Certificate of Approval
Middle East Logistics, – Tue, 17 Feb 2009 16:20
Words matched: RAK Steel, RAK STEEL
RAK STEEL, the second largest producer of steel rebars in the UAE, has received the prestigious CARES Certificate of Approval within one year of commencement of operations.
…RAK Steel receives CARES Certificate of Approval RAK STEEL, the second largest producer of steel rebars in the UAE, has received the prestigious…

Demand for steel in UAE projected to drop by 50%
Emirates Business, – Mon, 16 Feb 2009 22:30
Words matched: RAK Steel
Steel demand in the UAE is expected to fall by almost 50 per cent due to slowdown in the construction sector, experts said. In Dubai and the Northern Emirates alone, consumption has fallen by about 2.
…about 2.5 million tonnes than previously estimated, said Ajay Agarwal, CEO of RAK Steel. “Last year, UAE’s consumption was around 5.5 million…

“RAK Steel” (Global press)

Rak Steel postpones 250,000 tpy expansion until Q4 2009
Metal Bulletin, – Tue, 24 Feb 2009 20:06
Words matched: Rak Steel
UAE-based re-roller Rak Steel has postponed plans to up its capacity to 750,000 tpy until the end of the year due to the slowdown in demand from the construction sector, the company told MB.
…Rak Steel postpones 250,000 tpy expansion until Q4 2009 UAE-based re-roller Rak Steel has postponed plans to up its capacity to 750,000 tpy until…

UAE’s RAK Steel postpones planned capacity expansion
Electric Power Daily, – Tue, 24 Feb 2009 07:18
Words matched: Rak Steel, RAK Steel
Dubai (Platts)–23Feb2009 The UAE’s RAK Steel, a large producer of steel reinforcing bar, has postponed a planned capacity expansion until the end of 2009 due to unfavorable market conditions, a source at the company told Platts Sunday.
…UAE’s RAK Steel postpones planned capacity expansion Dubai (Platts)–23Feb2009 The UAE’s RAK Steel, a large producer of steel reinforcing…

Steel Guru : UAE cement and steel makers call for reimposition of import duty
Steel Guru, – Tue, 24 Feb 2009 07:12
Words matched: RAK Steel
Business 24-7 reported that UAE cement and steel producers feel the time is right for the reintroduction of customs duty on imports in an effort to protect the interests of local manufacturers.
…the financing of the project. Mr Ajay Aggarwal CEO of RAK Steel said the government decision to reintroduce the tariff will discourage…

Gulf steel firm halts expansion plans
Building, – Mon, 23 Feb 2009 22:15
Words matched: RAK Steel
Slump in demand from UAE forces RAK Steel to stall opening of new…
…Gulf steel firm halts expansion plans Slump in demand from UAE forces RAK Steel to stall opening of new facility A Gulf steel firm has put the…

UAE:RAK Steel postpones planned capacity expansion
Congoo, – Mon, 23 Feb 2009 19:48
Words matched: RAK Steel
RAK Steel has postponed its planned capacity expansion in the UAE to end-2009. 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.
…UAE:RAK Steel postpones planned capacity expansion RAK Steel has postponed its planned capacity expansion in the UAE to end-2009.

Ajay

The real issue of an illegal act committed under current laws of the land, seems to be totally lost. Instead  Indian culture and morality is being discussed.

This is all fine. Let the debate go on. And if the Indian wish let them vote to change  laws democratically changed to ban PUBs’.

But till that happens, under the current laws the unlawful goonda acts must be punished swiftly and decisively. Only then there will be hope that self styled moral keepers of India behave with restraint and do not become a law in themselves. It is the sacred duty of the authorities to act under the current laws to punish those who break them.

Ajay

1. The traders have started experiencing size shortages and are now seriously enquiring to purchase small quantities.
2. Traders are preferring to buy from quality local UAE producers rather than import as this reduces the procurement cycle and therefore the risk
3. Their confidence level with respect to price stability from producers as well as to end customers has significantly improved.
4. The main problem today is the the credit squeeze faced by real estate developers and consequently money flow to contractors and up and down the whole chain.

Ajay

1. How is the demand for steel in the Gulf?

The demand in the gulf in particular UAE, in my view for the first half of ’09 will be down by 50 to 70 % compared to the peaks of H1 of ’08. The reasons are well known :

· Credit squeeze whose origins are the sub prime mortgage, and other ‘sophisticated financial instruments’ of US market

· The galloping inflation practically world over forcing governments to take monetary initiates

· Unnatural price increases in commodities especially oil and steel

·  The human greed taking over which started in 2002 and looked as if it will never end.

· Gloomy investor sentiments

2. How has the global financial crisis affected the steel business?

· All lending institutions because of the financial crisis have reviewed their terms and made cost of capital to borrowers very high. They also insist for higher margin monies. Borrowers are used to cheap money. Their sentiments are down and with prices of all asset classes yet to see their bottoms there is a tough of war between lenders and borrowers.

In the case of steel all stake holders are still licking their wounds caused by the sharp and unprecedented fall in prices. They are risk averse and treading very very cautiously.

3. In what way do you plan to expand your business?

· RAK Steel is one year old company. We are concentrating getting certified by Dubai Municipality and Cares. We are very confident we shall obtain these soon. This will firmly establish us a quality manufacturer and facilitate export and open some sections of domestic markets. We have also expanded our product ranges by developing popular but difficult to manufacture sizes like 8mm.

4. Is sourcing raw material for production a problem? What can the government do to help steel manufacturers?

· Sourcing raw materials is no problem. They too are facing demand recession.

· The government can support in many ways. One is to re impose the 5 % customs duty on rebars. This duty was rightly withdrawn when the market had over heated. The side effect of this unfortunately was that speculators brought in steel much of which is of poor quality and sold through unconventional and fly by night operators to unsuspecting consumers. They disastrous results of this on structure will be seen many years from today. Reimposing this duty will bring stability to the market.

· Secondly they can expedite the easing of the credit crunch faced by developers and others in the construction industry. Demand revival  will have a snowballing positive effect on the whole economy including steel.

5. How do you think the steel industry will grow in the Middle East?

· Very difficult to forecast. But I belief the old days are not to be seen for the foreseeable future for next 2 to 3 years. Industry will have to seek export markets and improve efficiencies to be competitive.

Ajay

Initially I expected the relationship manager’s to do this and advice based on changing scenarios. But they are not a constant ( transfer,change of job, promotion c) and it takes time again to develop rapport with the new guys. More over they are too focused on selling the banks products and line of thinking( … in the long run, diversify , for your profile ) that they really do not think that it is their first responsibility to take care of customers interest only – that is maximize his wealth.

The result is that investments more or less follow the market trends. If the market goes up you make money if not you lose. Under any circumstance their pitch is more or less the same.

I review regularly and am not afraid to sell and sit on cash – even if sometimes it seems for long periods.

A conservative approach many will say rightly – but works for me.

Ajay