It is reported that Middle East steel producers are set to benefit from a surge in prices this year as demand from China and the recent floods in Australia continue to push up costs.
Analysts said that steel futures rose to a record high in Shanghai on the back of iron ore prices reaching a nine month high. This year steel prices are expected to rise by as much as 30% or more.
Ms Melinda Moore, a director at Credit Suisse Equities in London, said that "Steel prices are rising because of a combination of global demand restocking since the beginning of the fourth quarter of last year, combined with rising raw material prices, and exacerbated by the recent Queensland floods. These floods have restricted coking coal supplies that are used to make blast furnace derived steel, since the Queensland area supplies 55% of these coking materials to the global market. This has further tightened steel supplies, causing panic buying among end customers."
Ms Moore said that it is also unclear if global steel prices could continue to be affected by the Queensland weather. She added that "It is difficult to tell how long unusually strong seasonal weather conditions will last. Forecasters are suggesting until April 2011. Therefore, further flooding in Queensland may not be out of the question. If so, steel prices could be driven higher still as a result of less blast-furnace steel being made."
Mr Mubarak al Khaili VP of commercial strategy at Emirates Steel said that the Gulf construction industry is stabilizing across the region. Construction projects in the region will be the key driver supporting the steel industry's growth this year and next year, followed by oil and gas, petrochemicals and other infrastructure projects.
He added that "Some stability is returning to the GCC's construction sector, with signs of a recovery already showing for 2011. We believe that infrastructure projects will accelerate the region's recovery in the next couple of years."
Mr Raffi Vartanian, an analyst with Freight Investor Solutions in Dubai, said that "China eclipsed the US and Europe in 2003 in terms of global steel demand and is now the main driver for the global steel industry. However, predicting Chinese manufacturing output and its demand for raw materials is always difficult. China has closed-door policies and its economic growth is opaque. It is always very hard to gauge what demand will be in China every year. There is not much information on government sponsored projects."
While many of the major steel producers in Europe and Russia rely on coking coal for blast furnace-derived steel, Middle East steel manufacturers use natural gas to produce a different chemical reaction. They do not use coking coal in their processes.
This has meant producers such as Abu Dhabi's Emirates Steel Industries are enjoying higher steel prices due to the coking crisis, but have not suffered from the shortage of the raw materials itself. The Abu Dhabi company, a subsidiary of Abu Dhabi Basic Industries Corporation, is coming off a year when it boosted its rebar production by 7.5% as compared with 2009, while output of wire rods rose 64.5%.