Prices of steel and building material in the UAE dropped due to low oil price

Dubai: UAE-based steel and building material suppliers are seeing a dramatic drop in prices due to low oil price, Abdullah Al Gurg, Group General Manager of Easa Saleh Al Gurg Group (ESAG), told Gulf News.

"We have a large stock of steel and building material stored in the warehouses and showrooms which we bought at a higher price before the drop in oil price," he said.

"We have serious concerns about the stock of steel and other building materials as the prices are continuing to drop due to the low oil price," he said.

Oil was selling for more than $115 [Dh422] a barrel in June of last year. Today it is selling below $60 a barrel.

The price of steel has fallen by more than 30 per cent since the oil price dropped last year and it is expected to continue to remain volatile, according to Al Gurg.

The slide of the oil price impairs the business environment surrounding the oil and gas petroleum-based industries These include cement, asphalt, roofing materials, insulation, plastic and others materials, he said.

While there is no indication for an imminent rebound, Al Gurg said suppliers need to adopt new strategies to survive.

He said that businesses not adding value in the steel supply chain are in danger of going out of business.

ESAG Group made a conscious decision to shift from a stockholding model to a manufacturing model to protect this business segment and to prepare the Group's steel division for growth in the coming years.

The oil and gas industry is by nature cyclical, he said, and the market adapted to similar cycles in the past and will adapt according to the evolution of demand.

"We are confident in the long-term attractiveness of global oil and gas markets and committed to our strategy of provide the most innovative and competitive solution until the market could pass this critical phase," he said.

Economic boost

For Raza Rafar, CEO of Enshaa, low oil price means a promising economic growth and across all business sectors, especial real estate.

"Low oil price means a genuine economic boost hence oil and gas downstream industries will be produced at a lower cost," he said.

More energy is needed to produce commodities, such as steel, glass, aluminium and plastic, he added.

While the price of oil hit its peak in 2011 and 2012, the construction industry immediately felt the squeeze, leaving contractors worried about cutting costs. Today the low oil price provides some relief for the real estate market, Jafar said.

It is logical that most developers will seek to finalise their current projects faster and more developments are expected to be announced soon.

Pradeep Unni, ‎head of trading & research at Richcomm Global Services, said that it is not the worst oil crash in the history and that during 2008 and 2009 oil sold at $30 per barrel.

He said the real impact of a low oil price will result in incomes, revenues and liquidity being squeezed and most economic sectors across the UAE, from industry to tourism, will be affected.

"So we can see a lot of supply and stock in the market while there is less demand because of the shrinking capital," he said.

"I do believe that oil price has almost reached the bottom and I don't expect a further drop. Also I don't expect this situation to last long and the market will recover in the coming months when it adjusts to the new pricing thing," Pradeep said.