The steel market in the Middle East region looks more promising despite short-term challenges such as global downturn and the lack of available project finance that have put the brakes on regional expansion projects, said a report.

After five years of strong growth, the collapse in global commodity prices in the second half of 2008 and the sharp slowdown experienced in the regional construction sector have cast long shadows over the regional steel industry, according to Middle East Steel 2009, a report published this week by Meed Insight.

'With high stockpiles, particularly in the UAE, and slackening demand, steel prices are expected to remain subdued in 2009 in the range of $500 a tonne,' the report said.

'This would be a third of what they were at their peak in mid-2008, but a slight increase on their recent lows recorded in November 2008,' it added.

With the Middle East being a major importer of semi-finished products and current global steel demand weak, the region is likely to become a focus for international steel suppliers, with the prospect of dumping returning.

If this occurs, governments are likely to re-impose custom duties on steel imports in an attempt to protect local manufacturing, although such moves will do little to bolster prices, the report stated.

According to Middle East Steel 2009, the longer-term outlook for the Middle East steel market is more promising. 'Given an expected rebound in the oil price in 2010, fuelling economic growth and capital investment, steel demand is set to rise over the next five years.'

'Major, government-backed players in the regional steel industry appear to be well insulated from the effects of the global slowdown,' it said.

'However, the smaller, private sector firms, especially in the downstream arena, look vulnerable to a prolonged economic downturn, raising the possibility that there may be some much-needed consolidation in the industry,' the report added.

Middle East Steel 2009 reports that the global downturn and the lack of available project finance have put the brakes on regional expansion projects, particularly in the downstream sector.

In the upstream sector both Bahrain-based holding company Foulath and Brazil's Vale (formerly CVRD), which are planning major investments across the region, maintain that their projects will proceed despite the difficult trading conditions.

'If implemented, the projects will take regional pelletising capacity up to 68 million tonnes per year (t/y) by 2013,' forecasts the report.

'The slowdown will have a major impact on Iran's much-publicised plans to quadruple steel production over the next five years, which were already in trouble due to a lack of finance and bureaucracy prior to the onset of the credit crunch.'

However the report warns, 'A growing issue for the regional steel industry going forward will be the availability of competitively-priced gas feedstock.'

'With competition for limited supplies intensifying from the regional oil and utilities sectors, new gas allocations are likely to cost much more than in the past, when steel producers could count on a gas price below $1 a million BTU,' the report added.-TradeArabia News Service