Reuters reported that steel producers in the Gulf region wary of a surge in iron ore prices have urged mills to cut production until prices level off.
Mr Karel Costenoble GM of MESTEEL said that "People in the region are reluctant to purchase steel right now with the prices on the rise, but still there's a bit of a shortage in the market and local steel mills are not producing at full capacity."
The world's top 3 iron ore miners; Brazil's Vale, BHP Billiton and Rio Tinto who have the upper hand in the USD 80 billion iron ore business are pushing for a revamp of the decades old annual benchmark system. They want to replace the annual price contracts with quarterly ones and link prices to the iron ore spot market.
Gulf traders said that steel billet prices in the Black Sea region and in Turkey climbed towards USD 650 per tonne during the first week of April, sending steel prices in the United Arab Emirates to around USD 844 per tonne from USD 547 earlier this year.
Mr Bhaskar Dutta CEO of Oman based Jazeera Steel said that everyone is sceptical and operating at lower capacity, we are now only one shift per day, which is 40% of our capacity. Projects in the region may also slow down. Many companies in the Gulf have been having finance problems since the start of the economic crisis and now with steel costing more, these projects might be delayed further.
Mr Abu Bucker Husain CEO of UAE based Al Ghurair Iron & Steel said that Price volatility is seen as the main factor which has the potential to hurt future sales of the metal. We do not have problem in securing raw material, the problem is with the price, which is so volatile that within a week we are seeing sharp unjustified increases.
He said that Al Ghurair is still operating at full capacity of 200,000 tons per year and is passing the added cost on to its consumers. We have no other choice but to pass the added cost on to our customers, they were reluctant at first, but they are beginning to accept price increases.