Steel sector wary of raw material costs

Published January 10th, 2012 - 05:16 GMT
The projected price increase is due to the shortage of raw materials as production remains sluggish in the economic slowdown
The projected price increase is due to the shortage of raw materials as production remains sluggish in the economic slowdown

An expected increase in raw material prices and the continued Eurozone crisis will increase costs and hamper European-funded projects — making 2012 a hard year for the steel industry, exhibitors at the SteelFab show said yesterday. “Prices of raw materials like steel, petroleum by-products and other metals, can only go up, easily by eight to 12 percent,” said R.N. Mathew, Managing Director of Tools, a welding, lifting and industrial supplies company.

The projected price increase is due to the shortage of raw materials as production remains sluggish in the economic slowdown, he said. “A recession normally brings down prices but in the current recession, no one can afford to sell cheap.” The Eurozone crisis and a lack of funding will be the biggest challenges for the steel fabrication industry this year, industry insiders and analysts say.

In 2012, the growth of steel demand is expected to stall in most European countries with the notable exception of Poland which is forecast to post an impressive 9.5 percent growth, according to an outlook report by the World Steel Organisation. Overall, apparent steel use in the EU is forecast to grow by 2.5 percent to around 158.9 million metric tonnes in 2012, bringing it back to only 80 percent of the 2007 peak, the report said. “The industry will be stagnant for another two years. The recession has affected money supply in the market and some German-funded projects are not progressing,” said Mathew.

Securing funding for development and expansion of plants continues to be a challenge to manufacturers, said Mohammad Abu Dakka, manager of the Steel Machinery Division at Simco, a machinery trading company. Oil and gas projects in the GCC are driving the biggest share of steel demand, exhibitors said.

“There’s stability in the UAE and growth in demand from the GCC; there have been good inquiries from here and this will drive demand in 2012,” Abu Dakka said. “We had about a 70 percent increase in demand for steel machinery in 2011, most from the Gulf and the UAE.”

Impact of oil prices

High oil prices are expected to boost steel use in MENA with growth rates forecast at 8.7 percent this year compared to 0.9 percent forecast for last year, according to the World Steel Association. “Given that the political situation in the region is far from settled, there exist considerable uncertainties to the current forecasts for this region,” it said. Saudi Arabia leads steel manufacturing in the GCC and the UAE industry is still in its “infancy”, said Mathew.

For the industrial gases sector — that commercially manufactures gases sold for hospitals, aviation and military applications — rising oil prices will be a major hurdle, said Mohamad Al Ramahi, sales engineer at Emirates Industrial Gases Company. “High oil prices are factored into the cost of transportation, operating the factories and electricity. So the costs to the sector go up,” he said. However, the sector is expected to see 25 percent growth due to robust demand by the military, oil and gas sector and hospitals, he added. Industrial gases such as oxygen are used in hospitals, nitrogen for planes, and to cool steel sheets. The four-day SteelFab exhibition began yesterday with 200 local and international companies represented.


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