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Gulf traders hedge in steel as crisis hits prices

Sharjah, May 18, 2009

Steel traders in Gulf region are taking advantage of low prices to hedge their funds in the metal, executives said on Monday.

The price for rebar -- steel used in construction -- fell to almost a third from a peak of around $1,700 a tonne in July, traders in the region said.

"Traders in the Gulf are taking advantage of the situation right now and are stocking up steel to sell when the prices pick up again," said Steve Mackrell, the director of operations at the Iron and Steel Statistics Bureau (ISSB) in London.

The price of steel is expected to recover during the second half of the year as confidence returns to the markets, he said.

"Steel prices have really hit the bottom and I think we are going to see them recover now as demand is being driven by traders that are buying up steel and storing it," Mackrell said on the sidelines of a steel conference in the emirate of Sharjah, one of the seven members of the United Arab Emirates.

A real estate boom in the Gulf region was brought to a grinding halt late in 2008 after the global financial crisis started to hit the property and construction sectors.

A near $100 fall in the price of oil from July's peak ended an economic boom in the world's top oil exporting region.

Turkish steel manufacturers are also starting to notice the same trend. "We produce around 3 million tonnes of flat steel a year and 50 percent of that is exported to the Gulf region and lately we noticed that traders have been increasing their orders," said Yavuz Onay, chairman of Colakoglu Metallurgy, one of the largest steel manufacturers in Turkey.

"This has encouraged us to expand our operations to produce 4.5 million tonnes by the end of this year," he added.

Hundreds of billions of dollars of construction projects have been put on hold in the Gulf region in the past few months.

"I don't find that the Gulf region can really sustain all these projects here because they all rely on tourism and how many hotels are really needed here?" asked Mackrell in an apparent reference to Dubai, the region's tourism and trade hub.

"On the other hand I think in places like China where construction is mainly focused on infrastructure projects the sustainability is not dependant on tourism," he said. - Reuters




Tags: Construction | Steel | hedge |

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