Dubai-based Alam Steel has formed a 50:50 joint venture with South Africa’s Macsteel to produce high-grade steel plates at Jebel Ali Free Zone, in a bid to capitalise on the growing demand for construction materials in the region.

The venture, Macsteel Gulf, will build a 30,000-square-metre plant that will be ready to start production in the first half of 2009, and aims to produce 100,000 tonnes of finished products within five years.

The factory will have eight bays housing machinery to produce commercial, structural, pressure vessel, stainless and other finished steel products. They will be aimed at the petrochemicals, mining, earthmoving, shipbuilding, construction, manufacturing and fabrication industries in Dubai and the surrounding region.

The AED100m ($27m) Jebel Ali plant is the first of many planned by Macsteel Gulf across the region. The venture plans to enter fresh markets, such as Qatar and Saudi Arabia, once the Jebel Ali plant is operational.

Macsteel, which operates 43 service centres throughout South Africa, is focusing on the Gulf to capitalise on the soaring demand for steel products.

According to Gulf projects tracker MEED Projects, the value of projects under way has more than doubled over the past two years to more than $2 trillion, and demand for steel has followed a similar trend.

This spike in demand, together with rising raw material and commodity prices, has led to a dramatic increase in the price of all steel products in recent years.

“Prices keep going higher and higher,” says Vikram Bhatia, dir-ector of Alam Steel. “At the end of last year, I said prices were nearing a peak, but since then prices have doubled. So it is impossible to predict what is going to happen with any confidence.

“But with companies such as [Australia’s] Rio Tinto announcing an 85 per cent increase in raw material costs, you start to think we are witnessing a structural change in the price of steel.”

According to Bhatia, high prices could soon start to level off. “Will steel lose half its value? I don’t think so, but at the same time I don’t think we can continue to see the kind of increases we have seen recently,” he says.

With a slowing US economy and concerns over the credit crunch in many markets, prices are being led by demand from China.

“The credit crunch has slowed the market in the US, but at the same time cities such as New Orleans need to be rebuilt,” says Bhatia. “Although the US is a large consumer of steel, it is fairly self-sufficient and does not have a big effect on global prices.

“We are looking more at China, which has the capacity to influence world prices with exports. At the moment, the government has reined-in exports, but if that changes it could swing prices.”

The Gulf region has one of the highest per capita consumption levels of steel products in the world. At about 440 kilograms, it is far higher than the world average of 182kg.