Title: Market Talk: Steel experts discuss competition
Faced with tough market conditions, steel producers need greater transparency and a clearer voice if they are to stay strong
How would you describe the structural steel market in the Middle East?
Asim Siddiqui (AS): We are going through a period of overcapacity. And not just in the Middle East. We had the Chinese construction boom from 2003 to 2008 when a lot of countries increased steel capacity. Now, we have many more players in the market than 10 years ago. Competition is extremely fierce and margins are a lot tighter. We are getting to a stage where best practices may not be properly followed in order to get orders.
With the slowdown in construction, we are seeing liquidity tighten up. We are no longer just steel suppliers; we are being used as a cheap form of financing in the supply chain. We are seeing extended credit periods and delayed payments, which are adding to cash flow pressure on businesses, particularly steel traders. Steel traders must be careful how they manage cash flow.
The way we do business is changing. Ten years ago, the main goal of many steel traders was to get as much business as possible, and to look at top line turnover. Now the focus is on net profit, the bottom line. We are moving towards quality, whereas before we wanted as much quantity as possible.
There are also structural changes. Last year, we had the introduction of VAT in the UAE and Saudi Arabia. In the UAE, we now have Al-Etihad Credit Bureau reports coming out. We didn’t have any kind of credit bureau five or 10 years ago. We are seeing more transparency in the market and more of a check on reality than at any time before.
Q: Is it the same story for reinforcement steel (rebar) suppliers?
Rohit Valrani (RV): The entire steel industry is facing similar issues. We are being utilised as a cheap form of financing in this market. We have oversupply on the rebar side, similar to the structural steel sector. We have a large number of traders within the market that are also finding, somehow, cheap financing. Overall, there is a flight from volume and quantity to quality. It is also challenging to get information flows between the various segments of the steel industry.
Today, we are in a situation where the top line is less important and the bottom line is extremely important. As a business, we have moved away from just looking at volumes. We don’t necessarily target big jobs anymore. We target more profitable jobs. We look at the customer.
One of the most important things for us is knowing the payment cycle. Our margins are being eaten away by delayed and protracted payments. This is an issue that’s been happening over the past couple of years – and this year, a little bit more.