Price Trends Report: Construction Materials

CEMENT and STEEL

March 2014

Economic Research Department

Dubai Chamber of Commerce and Industry

Page 1
Table of Contents

PART I - CEMENT
Introduction 3

World Cement Market 4

- World Cement Prices 5

GCC Cement Market 6

- GCC Cement Capacity 7

- GCC Cement Trade 8

UAE Cement Market 9

- Dubai Cement Price Fluctuation 10

- Determinants of Cement Prices 11

Conclusions and Recommendations 14

Page 2
 Introduction
Dubai construction and building professionals ended
2013 with great joy as the emirate won its bid to
host Expo 2020. It is expected that the mega event
will give a boost to different economic fields,
especially the construction sector. Analysts expect a
number of large projects in infrastructure (road, rail)
together with new residential units, hotels and
amusement parks to stem from winning the bid.
Ahead of the expected fast track growth in the
UAEs construction activity, it is important to
understand the current state of cement and steel
prices, and how price fluctuation could affect
construction activity in Dubai.
Objectives
The objectives of this study are to analyze price
fluctuations of 2 major construction materials:
cement and steel, and determine the factors behind
these fluctuations. We intend to find answers to the
following research questions:
What are the main characteristics of building
materials in Dubai?
What were the major price trends in international
markets, MENA market, GCC market and Dubai
market in the past 3-5 years with respect to
cement and steel?
What determines the difference in prices of
cement and steel across those regions?
To which extent do raw materials price
fluctuations affect the selling price?
What are the perspectives for cement and steel
products in Dubai?
Methodology and data
The study uses a quantitative descriptive approach
for analyzing major trends in construction material
prices.
Historical data used in this study was obtained
through secondary research. DCCI produces its
own construction materials price indices. Historical
prices of cement and steel were collected from
local/international statistics centers and Steel First.
Raw material and energy prices have been obtained
through Thomson Reuters DataStream and IMF.
The study has also used data from International
Cement Review "ICR", ISSB, Global research,
World Steel Association and other international
sources. These prices are normally rounded up,
calibrated and usually forecasted, and should be
therefore treated carefully.
Page 3
 World Cement Market
World Cement Production (2008-2013)
Global cement production in 2013 reached 3.8 Billion Tons
Growth Rate
Percentage
billion tons, after realizing a growth of 3.6% over 4.5 12%

2012 level. 4
10% 10%
3.5
The cement industry kept growing globally at 3 7.9% 8%
rates ranging between 3.4% and 10% since 2.5
7.1%

2008, despite the weak global economic 2

6%

environment that followed the financial crisis. 1.5

3.9%
4%
3.4% 3.6%
Most of that growth came from the emerging 1
markets. 0.5
2%

0 0%
According to Cembureau, the European Cement 2008 2009 2010 2011 2012 2013

Association, China accounted for approximately Source: Dubai Chamber based on Quebec Beton Association, USGS data

59% of global cement production; while other Share of World Cement Production (2012)
Asian countries made up 11.9% of the total. 2.1%
India and Europe had the 3rd highest 0.2%
6.6% China
contribution with 6.6% each. Japan
2.0% 5.1%
India
Growth in cement production is expected to gain 4.5% other Asia
more traction in the near future, and analysts
Africa
expect to see growth of more than 4.9% this
11.9% USA
year, driven by fast construction growth in North
59.4% Americas
America, Sub Saharan Africa and India.
Oceania
6.6%
CIS
Europe
1.5%

Source: Dubai Chamber based on CEMBUREAU data

Page 4
 World Cement Prices
Sample World Prices of a 50kg Portland Cement Bag (2013)

Jordan
$7.0
Iraq
$7.2
KSA
$4.2-$5
UAE
$3-$3.8
USA
$5-$6 Egypt
Honduras $4.2
$8.0 Ghana
$6.8 Pakistan
Cameroon $4.6
$9.5 India
Ethiopia $3.5
$9.3 China
Zambia < $3.0
$13 + Philippines
$4.8
Source: Dubai Chamber based on secondary research

Page 5
 GCC Cement Market
GCC Demand vs. Supply (2008-2013)
The GCC region is estimated to have produced Million Tons
140
121 million MT of cement last year, which Demand Supply 119 121
exceeds its demand by around 19 million tons. 120
104
102 102
100 90 92
Despite the slowdown in demand during 2010 78 80 81 79 81
80
and 2011, local UAE producers kept adding
capacity as previous expansion projects came 60

on line. Excess production put pressure on 40

prices and pushed producers to explore new
20
territories, such as East and Central Africa.
0

While prices remained stable in KSA and Qatar 2008 2009 2010 2011 2012 2013e

over the past 3 years, UAE prices cooled down Source: Dubai Chamber based on Global Research, USGS data

in response to excess supply, dragging with

them Oman cement prices as well, as part of the Cement Prices in Major GCC Markets (2010-2013)
USD/Ton
excess got exported to neighboring Oman at
80
very competitive prices. Oman
75

The average price in the GCC is around $63 per 70 Qatar

ton. UAE prices are about 12% below average, 65
while prices in Qatar and Oman are 10% and KSA
60
7% above average respectively.
55 UAE
KSA had an import ban in place, which helps 50

explain its solid prices. However, the ban has 45

been recently lifted in response to the persistent Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
cement shortage seen in the Saudi market. Source: Dubai Chamber based Global Research and Global Cement Report data

Page 6
 GCC Cement Capacity
GCC Cement Installed Capacity (2008-2013)
The GCCs cumulative installed capacity Mtpa
Growth Rate
Percentage
140 20%
reached 123.1 million tons per annum in 2013; 123
117 18%
up by around 51% from 2008 capacity level. 120
106
104 16%
100
The steady increase in capacity seen since 82
88 14%

12%
2008 lead to supply of cement persistently 80
10%
surpassing its demand. This trend could be 60
8%
mainly attributed to the pre-crash period when 40 6%
the construction sector in UAE lead growth in 4%
20
the entire GCC. 2%

0 0%
As a result, cement companies pumped up 2008 2009 2010 2011
Source: Dubai Chamber based on Global Research, Global Cement data
2012 2013

capacities to meet the rising demand at that

GCC Cement Capacity Breakdown (2013)
time. However, demand growth dipped during
the crisis period and the region was caught up in 1% Bahrain
Kuwait
an oversupply situation Qatar 5%
5%
With a capacity to produce over 61 million Oman
5%
tons/annum of cement and clinker, KSA
constitutes half of the GCCs total cement
capacity, and slightly over half of the regions
50% KSA
actual production with its high utilization rates.
UAE
34%
UAE has the second place with an installed
capacity of around 41 million tons/annum of
clinker and cement.
Source: Dubai Chamber based on Global Research data

Page 7
 GCC Cement Trade
GCC Cement Trade (2008-2012)
15.4
The GCC region has turned from a net importer 16

Million Tons
prior to the crisis, to a net exporter, driven by 14 GCC imports
excess supplies in both UAE and Oman. 12
GCC exports

Around 87% of the regions exports (5.3 million 10 9.3

tons) originate from UAE, while the remaining 8

8.0
7.2
13% comes form Oman; which has strong 6.6
6.2

presence in Yemen and Somalia. 6

4.0 3.8 3.8
4 3.2
Oman has been by far the largest importer of
cement in the region. Portland cement imports 2

of 3.4 million tons came almost entirely from 0

2008 2009 2010 2011 2012
neighboring UAE in 2012. Source: Dubai Chamber based on COMTRADE data

The large export concentration on Oman is GCC Cement Trade Breakdown (2012)
attributed to the small Qatari market, which is
already saturated with local production; while 3% UAE
the Saudi market was protected via a ban on 1% Qatar
KSA 5% 13%
imports. Oman

As a result of UAE cement changing destination

EXPORTS
IMPORTS
from the Omani to KSA market after the recent
removal of the ban, prices started to improve in
Oman and its local producers started seeing
UAE
higher profit margins (reached 32% in 2013) Oman
87%
91%

Source: Dubai Chamber based on COMTRADE data

Page 8
 UAE Cement Market
UAE Cement Production (2004-2012)
In 2012, total cement capacity in UAE was Million MT
45
estimated at around 40 million MT; while local
40
consumption was in the area of 16 million MT,
35
according to global cement magazine.
30
Installed Cement and
Capacity utilization is expected to improve 25 Clinker Capacity

gradually over the next 5-10 years to cope with 20

the expected increase in demand that will follow 15

10
the construction influx spurred by the Dubai
5
Cement Production
EXPO 2020, together with mega infrastructure
0
and housing projects worth $100 billion to take 2004 2005 2006 2007 2008 2009 2010 2011 2012
place in Abu Dhabi under its 2030 vision. Source: Dubai Chamber based on Cemnet, Global Cement Magazine data

Due to excess production, UAE has turned from

being a net importer, to becoming a net exporter UAE Cement Trade (2008-2012)
Million MT
starting in 2010. 3.0
3 Imports Exports

Major producers such as Union Cement, Gulf

2.5 2.3
Cement and Binani have made a successful 2.2

entry into neighboring MENA and African 2

markets; effectively exporting over 3 million MT

1.5
of Portland cement in 2012. 1.1

1
0.6
0.5
0.5
0.2
0.04 0.01 0.00
0
2008 2009 2010 2011 2012
Source: Dubai Chamber based on Trademap data

Page 9
 Dubai Cement Price Fluctuation
Dubai Cement Group Price Index (2010-2013)
Dubai cement prices have remained stable Index Level
115
overall, and even realized a modest cumulative
Cement Products Group
growth of 4.9% since Q4 2010. This mild price 110

recovery emerged as the market gradually 105

cleared much of the excess supply through 100

exports. 95

The chart on top illustrates three major trends: 90

rapid growth in 2011 at 5.4% , followed by a mild 85

loss of momentum in 2012 at 2.2%, and a then a 80

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
decline in 2013 at (2.6%). 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013
Source: Dubai Chamber Economic Research Department
The bottom chart shows that with the exception
of Gypsum, all other 4 types of cement move Index Level Detailed Dubai Cement Price Indices (2010-2013)
closely together (clustered). The recovery in 130

cement prices seen in 2011-2012 was supported 120

by large scale construction projects in UAE In 110
addition to higher levels of exports as UAE
100
based companies continued their expansion in
East African markets. 90

80
The UAE's construction industry's value has
reached around $41 billion in 2013, according to 70

Business Monitor International (BMI). Yet, despite 60

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
healthy demand, the cement price index declined 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013
by 2.6% compared to the same period of the Sulphate Resistance Portland Cement White Cement
previous year, due to lower realization rates. Lime Gypsum
Source: Dubai Chamber Economic Research Department

Page 10
 Determinants of Cement Prices
Breakdown of Cement Production Costs
The production of 1 ton of cement requires on
DEPRECIATION
average around 1.5 tones of limestone, 1/4 ton
of coal and 50 kg of Gypsum, in addition to 11%
ENERGY
additives. 31%

UAEs Northern Emirates sit on abundant RAW

MATERIALS AND 28%
deposits of high quality limestone. Thus, imports CONSUMABLES
are mainly limited to fuel and additives.

Generally, fuel accounts for around 31% of total PRODUCTION,

30%
production cost of cement. Since mid 2007, LABOR AND
MAINTENANCE
cement manufacturers in UAE started using
Source: Dubai Chamber based on Lafarge data
imported coal instead of natural gas as a
solution to the reoccurring shortages of natural Natural Gas Prices and Subsidies (2013)
gas (which was subsidized similarly to Qatar). US$/mmbtu
4

Cement producers in Oman, Qatar/UAE, and 3.5

KSA benefit from subsidized rates that reach 3
56%, 71%, and 78%, respectively, of the
2.5 Subsidy 1.92
international market price for natural gas. 2.42
2 2.67

Oman has recently proposed plans to start lifting 1.5

3.42

energy subsidies gradually. Some industrial 1

users will start paying $2.5/mmbtu this year, and Price 1.50
0.5 1.00
up to $3/mmbtu by 2015. 0.75
0
World Oman Qatar
Qatar / UAE KSA
Source: Dubai Chamber based on Index Mundi, Oxford Institute of Energy data

Page 11
 Determinants of Cement Prices (Cont.)
USD/Ton Production Costs across the GCC (2011)
80
KSA enjoys the lowest production cost in the GCC,
70
followed by Qatar and Oman. Cement production
requires a very energy intensive process, and 60
Gross
therefore the main cost driver. 50 Margin 35.0 28.0
2.2
32.1

The chart on the bottom shows that it costs almost 40 Selling

Price
twice as much to produce a ton of cement in UAE 30
compared to KSA ($50/ton vs. $27.8/ton) 47.8
20 Production
33.7 37
30.9 Cost
Considering the fact that the GCC countries have 10
similar production conditions (modern production
0
technology, inexpensive labor and raw material KSA Qatar Oman UAE
abundance), it would be logical to suspect that Source: Dubai Chamber based on Tadawul, Aljazira Capital data

energy cost is behind such a difference.

USD/Ton Production Costs across the GCC (2013)
Most GCC based cement producers have very 80

high gross margins due to extremely cheap energy 70

cost in addition to imposing import quotas/bans
60
that protect local producers and safeguarded the 29.8
33.6 5.9
level of domestic prices at comfort. 50
33.2
40
It is also worth noting that unlike KSA and Qatar,
producers in Oman saw their margins decline as a 30
50.0
result of sales lost to cheaper UAE exports in 20
36.4 38.7
2011. Though, they have quickly recovered to 27.8
10
levels over 40% in 2013; which wouldnt have
been possible under a scenario of dumping by 0
KSA Qatar Oman UAE
UAE producers. Source: Dubai Chamber based on Global Research data

Page 12
 Determinants of Cement Prices (Cont.)
Prices of cement in UAE are determined almost Historical Gross Margins (2007-2013)
% of Revenue
entirely by levels of demand and supply. 70%

60%
Prior to 2008, the local construction boom lifted
50%
prices higher, which eventually led local producers to
make major investments to increase their production 40%
capacities.
30%

Between 2008-2010 new production capacities got 20%

installed, whereas the construction activity slew 10%

down dramatically. As a result, quantity of cement
demanded by the local market was much lower than 0%
2007 2008 2009 2010 2011 2012 2013
the quantity supplied; and this imbalance has forced KSA Qatar Oman UAE
prices to drop Source: Dubai Chamber based on Global Research data

The excess quantity got exported to neighboring
markets (Oman, Africa) at an average price of
$56/ton, which was around $2 above the local price
in 2012.
After 2011, demand started growing again driven by
a strong rebound in construction activity in Dubai
and Abu Dhabi. The positive trend is expected to
continue, and cement prices have already shown
signs of strengthening (as demonstrated by the price
index chart).
In 2012, UAE had the lowest cement price in GCC at
around $54/ton. As a result of the excess supply, local
producers exported over 3 million tons at an average price
of $56/ton, which was still a better price compared to what
the local market was offering.
The points mentioned above make it safe to conclude that
natural market demand/supply forces were behind UAE
exporting its cement to neighboring markets.

Page 13
 Conclusions and Recommendations
Conclusions
UAE cement prices are lowest in the region and sit
at 12% below the average GCC prices of around
$63 per ton.
Energy is subsidized at rates in the range of 56%-
78% in the GCC, making production costs in the
region the lowest in the world.
Data suggest that there was no obvious case for
dumping in Oman. Such practice requires a
product to be sold in a foreign market at a lower
price than the local market; which was not the
case. Net profit margins of cement producers in
Oman were in the range of 21%-35%, which
means that no serious financial implications
affected the local players due to alleged unfair
competition (dumping) from UAE producers.
Recommendations
Ideally, cement trade should be organized at the
GCC level because some member states suffer
from shortages in cement (Qatar and KSA) while
other members suffer from excess supplies of the
same product (UAE, Oman). Forming a Building
Materials Exchange at the GCC level to support
market information in terms of supply and
demand as well as prices, will add efficiency and
competitiveness to the region.
Challenges are to first enhance market
information locally, and second to streamline
inputs price subsidies.
Page 14
Table of Contents

PART II - STEEL
World Steel Market 16

Middle East Steel Market 17

- GCC Steel Trade 19

UAE Steel Market 20

- Dubai Steel Price Fluctuation 21

- Fluctuation in Steel Prices (Long Products) 22

- Fluctuation in Steel Prices (Flat Products) 23

- Determinants of Steel Prices 24

Conclusions 26

Page 15
 World Steel Market
World Crude Steel Production(2002-2013)
Moderate demand growth and stabilizing steel Million MT Growth
1,600 20%
prices have been the theme of 2013. The trend
1,500 15.9%
is expected to continue this year; with support 15%
1,400
stemming from production cuts by global 1,300 9.4%
8.9% 10%
steelmakers. 1,200 6.2%
7.3% 8.1% 7.8%
7.3%
1,100 3.9% 5%
The persistent excess capacity is considered a 1,000 -0.4%
0.7% 0%
major issue in the global steel industry. Steel 900

consuming industries continue to see supply 800

-5%
700
growth outpacing demand, in spite of global -7.8%
600 -10%
steel manufacturer maintaining capacity 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

utilization rates below 80%. Source: Dubai Chamber based on World Steel Association data

Slowdown in demand growth in emerging Global Steel Making Capacity Vs. Consumption
Million MT
markets, especially in China along with stagnant
2200
steel prices will exercise a downward pressure
on global steel sector for at least another year 2000

according to analysts. 1800

1600 Steel Making Capacity

After an impressive 15.9% recovery in 2010, the
1400
growth in global demand returned to its
historical average (around 7%) before slowing 1200

down in 2012-2013. The World Steel Consumption of Crude Steel

1000

Associations latest forecasts expect global 800

demand to grow by around 46 million tonnes a
600
year. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Dubai Chamber based on OECD and World Steel Association data

Page 16
 Middle East Steel Market
Apparent Steel Use per Capita (2008-2012)
Demand for steel in the Middle East and North Kg/person
Africa (MENA) region is estimated at 76.5 1800

million tons; of which, 34.9 million tons get 1600

produced locally. 1400 UAE Qatar KSA Middle East World

1200

During the past 3 years, apparent steel 1000

consumption in the Middle East increased at 800

2.9%, 3.5%, and 5.9% respectively. 600

400
Huge infrastructure spending in the Middle East 200
and the Gulf Cooperative Council (GCC) 0
2008 2009 2010 2011 2012
countries in particular is driving strong demand
Source: Dubai Chamber based on World Steel Association data
for steel and fuelling investment in steel
projects.
Crude Steel Production (2008-2012)
Crude steel production in MENA has increased Million Ton
40
from 15 million tons in 2000 to around 34.9 North Africa Middle East
35
million tons in 2013. at a Compound Annual
8.6
Growth Rate (CAGR) of approximately 5.2%. 30
8.2
7.9
25 8.8
Rising infrastructure spending in KSA, UAE and 20
Qatar, supported by healthy oil revenues,
15
resulted in an increase of 4.1 million tons in the 23 24.7 26.3

Gulf regions construction steel production 10 20

capacity in 2012 with total capacity reaching 5

20.7 million tons, according to Zawya. 0

2010 2011 2012 2013
Source: Dubai Chamber based on ISSB data

Page 17
 Middle East Steel Market (cont.)
Share in Middle East Steel Demand
The Middle East region is a net importer of iron Other
and steel products, particularly, the GCC
Iraq 12%
countries, driven by their vibrant construction
and infrastructure sectors. Other 4%
GCC 8% 39% Iran
Long steel products imports (i.e. rebars), at
16.7 million tons, made up over 37% of total
demand in the region. UAE
15%

Flat steel products imports (i.e. hot rolled coils)

22%
stood at 12.1 million tons in 2012, which
contributes 27% to the total regional demand. KSA

Source: Dubai Chamber based on Frost & Sullivan data

Breakdown of Middle East Steel Imports (in million tons)

5.4
6.1 5.7
5.3
10 Tubes
10.1
11.1 9.3 Semis
Flat
11.7
12.1 Long
12.5 12.8

18.5 16.7
14.3 14.6

2009 2010 2011 2012

Source: Dubai Chamber based on ISSB data

Page 18
 GCC Steel Trade
GCC Imports/Exports of Steel (HS:72)
Between 2009 and 2012, GCCs net imports Billion US$
have risen at a CAGR of 32%. Most of this 14 12.89
growth is in the form of demand recovery after 12 GCC Imports
11.01 11.16
the sharp fall during the crisis. GCC Exports
10
8.23
On a year-over-year basis comparison, the 8
Net
6.65 Imports
values of both imports and exports declined in
6 4.97
2012; however, the difference between the two,
or net imports almost doubled in 2012 as it 4
2.64
exceeded $8.5 billion. 2 1.28

The fact that exports dropped at much faster -

2009 2010 2011 2012
Source: Dubai Chamber based on Trade Map data
rate than imports during 2012 could indicate two
trends: Local consumption is on the rise (high
GCC Steel Trade Breakdown (2012)
net imports); and local production is covering
much of the local markets needs (low exports).
Qatar 1%
Qatar 1% Bahrain
Kuwait
KSA alone imports half of the GCCs needs of Kuwait
4% 4%
Bahrain 5%
steel, followed by UAE at one third of total 6%
9%
Oman
value.

EXPORTS

IMPORTS
KSA KSA
UAE also contributes half of GCCs exports of 12% UAE 50%
52%
steel; whereas Oman and KSA contribute a third
UAE
of the total value of the regions exports. Oman 35%
21%

Source: Dubai Chamber based on COMTRADE data

Page 19
 UAE Steel Market
UAE Imports/Exports of Steel Products (HS:72)
Valued at $41 billion in 2013, The UAE Million Ton
14
construction sector is considered the largest in
the Middle East, according to BMI. 12

10
UAE remains a net importer of steel, specifically,
8
flat steel products. In 2012 imports of steel were Imports
around 5.4 million tons. As for exports, they 6

mainly consist of scrap. During 2010 and 2011, 4

exports of steel reached 11 million and 8 million Exports
2
respectively, as local construction sector
stalled. -
2008 2009 2010 2011 2012

Source: Dubai Chamber based on Trade Map data

UAE production capacity has been on the rise,
and it is estimated that it reached 3.6 million
UAE Crude Steel Production Capacity (million tons)
tons in 2013, in response to strengthening
Million Ton
demand form the local real estate market and 4

trading activity. 3.5

Analysts estimate local demand for steel 3

3.6
products to be around 12.6 million ton/year, and 2.5

local plants are gradually covering that volume. 2 2.4

Though, one of the main issues threatening 1.5 2

UAE based steel producers is the cheap imports

1
from Turkey. This has made some major players
0.5
ask for imposing a tariff on imports to level out 0.09 0.5
0.2
the playing field. 0
2008 2009 2010 2011 2012 e 2013
Source: Dubai Chamber based on World Steel Association data

Page 20
 Dubai Steel Price Fluctuation
Dubai Steel Price Index (2010-2013)
The chart on top illustrates two major trends: Index Level
130
rapid growth in the first half of 2011 at 21.6% , Steel Products
followed by a gradual and continuous decline at - 120 Group

23.6% over the period Q3 2011 - Q4 2013. Thus, 110

when looking at the entire period under analysis,
100
prices have declined by -7.1%.
90
The bottom chart shows that with the exception
80
of G.I. PL Sheet, all other 5 types of steel move
closely together (clustered). 70
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013
Raw material shortage in international markets Source: Dubai Chamber Economic Research Department

was behind the sharp hike in steel price in 2011. Detailed Dubai Steel Price Indices (2010-2013)
Index Level

Unlike cement, Steel prices are greatly 150

140
influenced by global supply and demand forces;
130
together with freight costs. Therefore, local
120
demand does not have a crucial role in moving
110
steel prices.
100

Current prices will support future growth in the 90

80
Dubai/UAE construction industry. Analysts
70
expect steel prices to stagnate at their current
60
level for at least a year, in light of the relatively Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013
weak global economic environment.
Flat Steel Beam Steel Angled Steel
Bars Hightensile Steel G.I. PL Sheet

Source: Dubai Chamber Economic Research Department

Page 21
 Fluctuation in Steel Prices (Long Products)
Historical Fluctuation in Steel Rebar Prices (by region)
Most of the price appreciation in 2010-2011 was USD/Ton

900
to recover part of the huge losses seen between
850
2008 and 2009, when prices plummeted from 800
$1,200/ton to $450/ton. 750
700
Long products have experienced a temporary 650

price improvement in mid 2011, before they 600

declined throughout 2012 at -13% in the case of 550

500
the Middle East. In 2013, however, signs of price
450
stabilization were seen in all markets as
illustrated in the upper chart.
N.America Middle East East Asia Europe
Source: Dubai Chamber based on Steel Business Briefing data
Price disparity between world markets (for long
steel) increased by 23% over the past 4 years; Recent Fluctuation in Steel Rebar Prices (Middle East)
while prices in the middle east sub-markets USD/Ton
620
remain closely clustered together.
600
Steel prices in KSA are regulated by the
580
government. In spite of few firms importing at
cheaper prices and selling below the controlled 560

prices, the Saudi market remains immune to wild 540

price fluctuations.
520

Emirates Steel plays an active role in moderating 500

price swings in UAE. As shown in the lower 28 Oct 04 Nov 11 Nov 18 Nov 25 Nov 02 Dec 09 Dec 16 Dec 23 Dec 30 Dec 06 Jan 13 Jan 20 Jan
2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2014 2014 2014
graph, UAE has enjoyed the lowest price in the UAE KSA Iran
region, and had the least fluctuation. Source: Dubai Chamber based on Steel First data

Page 22
 Fluctuation in Steel Prices (Flat Products)
Historical Fluctuation in HRC Prices (by Region)
Since mid-2011 flat product prices have been USD/Ton
1000
consistently falling, and on average are now 950
some 12% below Q12011 levels. 900
850

Looking at the benchmark product hot rolled coil, 800

750
the downward trend is apparent in all
700
international markets. The US steel market, 650
however, went against the flow and pushed 600

prices upward during Q4 2012 and 2013 in 550

500
response to the recent economic recovery and
the pick up in manufacturing activity.
N.America Middle East East Asia Europe
Source: Dubai Chamber based on Steel Business Briefing data
Price disparity between world markets is more
significant in the case of flat steel products, as Recent Fluctuation in HRC Prices (Middle East)
the gap between the highest and lowest price USD/Ton
620
increased by a whopping 325% over the past 4
years. 600

580
Regional discrepancy is limited in the middle
east, with UAE being around 2% above Turkey 560

(a major exporter); while KSA sits around 5% 540

above Turkeys benchmark price. Such values
are in fact very competitive. 520

500
Iran has the lowest prices due to excess supply, 05 Nov 12 Nov 19 Nov 26 Nov 03 Dec 10 Dec 17 Dec 24 Dec 31 Dec 07 Jan 14 Jan 21 Jan
2013 2013 2013 2013 2013 2013 2013 2013 2013 2014 2014 2014
caused by export barriers.
UAE KSA Turkey Iran
Source: Dubai Chamber based on Steel First data

Page 23
 Determinants of Steel Prices
USD/Ton
Iron Ore and Nickel Prices
USD/Ton
The main raw materials that go into Steel 30,000 200

manufacturing supply chain are Iron Ore, Scrap, 180

25,000 Iron Ore (RHS)
and Nickel.
160

After reaching its peak in Q1 2011, Iron Ore 20,000

140

prices plummeted by 47%, then started 15,000

120
Nickel (LHS)
stabilizing since Q4 2012. Despite the recent 100
cooling in prices, they still remain high, 10,000
80
historically, sitting at around 4 times their level in
2000. 5,000 60

The same could be said about Nickel prices,

Source: Dubai Chamber based on World Bank data
which saw a deeper, longer decline of 51%.
Unlike Iron Ore, Nickel prices were not very
quick to stabilize; as they continued declining Steel Scrap Prices (EU Imports)
until end of Q2 2013. USD/Ton
400
380
Steel scrap prices followed the same pattern, 360
with a sharp decline of -31% in 2012, before 340

showing signs of stabilization around the end of 320

300
Q2 2013. 280
260
Weakening global demand for steel products is 240
behind the decline in all raw material prices; 220

however, the strengthening Chinese demand for 200

steel has recently stabilized prices..

Source: Dubai Chamber based on DataStream data

Page 24
 Determinants of Steel Prices (Cont.)
Worlds Total Vehicle Production
Million Growth Rate
Over half of worlds steel output is used in the 90 84 30%
80
construction sector. Transportation uses another 80
78
25%
14%, according to OECD. Strong performance in 70
62
these two sectors provided stability to global 60 25.9% 20%
First 6 months
steel prices. 50 44
15%
Since the end of the financial crisis, output 40

growth in the global Automobile industry has 30 10%

been led by emerging markets; with china 20

3.2%
5.1%
5%
leading the list of top producers with over 15.5 10 0.0% 1.6%

million vehicles in 2012. 0 0%

2009 2010 2011 2012 2013
Source: Dubai Chamber based on DataStream data
While advanced markets automobile output got
hit by the economic downturn, emerging markets New Construction Started in US (private houses)
production kept increasing in response to Units/Month
1200
resilient sales. As a result, overall global output
1100
grew at a CAGR of 10.6% between 2009 - 2012.
1000

US residential construction continues to grow 900 Trend Line

steadily at a CAGR of 12.9% since 2010. The 800

U.S. remains the largest construction market, 700

followed by China. Unlike the US, however, the 600
main drivers of growth in China have been 500
infrastructure and non-residential structures. 400
This improvement has brought some stability to
world steel prices.
Source: Dubai Chamber based on DataStream data

Page 25
 Conclusions
Unlike cement, steel prices are greatly influenced
by global supply and demand forces; together with
freight costs. Therefore, local demand does not
have a crucial role in moving steel prices.
From the demand side, over half of worlds steel
output is used in the construction sector.
Transportation uses another 14%, according to
OECD. Strong performance in these two sectors
provided stability to global steel prices.
On the supply side, however, we see that raw
material shortages pushed production costs higher,
which has later forced suppliers to cut their excess
production levels (to normal levels). This has
eventually lifted pressure off raw material prices
and led to steel prices cooling down.
Even though they can influence prices in the short
term, local demand/supply forces do not have a
crucial role in determining steel prices in the long
term.
Current prices will support future growth in the
Dubai/UAE construction industry. Steel prices are
expected to stagnate at their current level for at
least another year, in light of the relatively weak
global economic environment.
Price disparity among middle east markets in the
case of flat steel is over 8 folds higher than the
disparity seen in long steel prices; which is due to
the fact that flat steel products are mainly imported,
whereas long products are produced locally.
There is also a noticeable similarity in movement of
KSA and UAE flat steel prices (page 24), which
suggests that regional demand could affect prices
only in the short term; as prices tend to follow
international demand in the long term.
Page 26
 References

Cement

Dubai Chamber, Construction Materials Price Index.

http://www.dubaichamber.com/resources/research-reports/price-indices/construction-material-price-index

IMF primary commodity prices. http://www.imf.org/external/np/res/commod/index.aspx

Global Investment House. http://www.globalinv.net/contentdisp.asp?pageId=313

Trade statistics for international business development. http://www.trademap.org

Thomson Reuters DataStream.

Dubai Statistics Center. http://dsc.gov.ae/en/pages/home.aspx

Statistics Center - Abu Dhabi (SCAD).

http://www.scad.ae/en/statistics/Pages/Statistics.aspx?ThemeID=2&TopicID=5&SubTopicID=32

Emirates 24/7 and Gulf News articles.

Oxford Business Group

http://www.oxfordbusinessgroup.com/economic_updates/oman%E2%80%99s-cement-market-firming

International Cement Review. http://www.cemnet.com/

Global Cement Magazine. www.globalcement.com/news/itemlist/tag/Price

Page 27
 References

Steel

Dubai Chamber, Construction Materials Price Index

http://www.dubaichamber.com/resources/research-reports/price-indices/construction-material-price-index

IMF primary commodity prices http://www.imf.org/external/np/res/commod/index.aspx

Trade statistics for international business development http://www.trademap.org

Thomson Reuters DataStream

Metal Bulletin, Steel First http://www.steelfirst.com/

International Steel Statistics Bureau http://www.issb.co.uk/mena.html

World Steel Association http://www.worldsteel.org/statistics/statistics-archive.html

Dubai Statistics Center http://dsc.gov.ae/en/pages/home.aspx

Statistics Center- Abu Dhabi (SCAD)

http://www.scad.ae/en/statistics/Pages/Statistics.aspx?ThemeID=2&TopicID=5&SubTopicID=32

Emirates 24/7 and Gulf News articles

Page 28