Steel suppliers in the Gulf are warning contractors and developers to prepare for a summer of soaring reinforcement steel (rebar) prices, after a 33 per cent hike in the first five months of the year left prices at record levels in early June.

Rebar prices hit $560 a tonne in Dubai on 7 June following a surge in global demand for steel, which is set to sustain prices at high levels for several months.

"I expect rebar prices in Dubai to remain in the range of $530-570 a tonne until the fourth quarter," says Vikram Bhatia, director of Dubai-based Alam Steel Industries. "Then it is likely they will dip as construction activity slows in the US and Europe. Prices traditionally weaken in Q4."

The current prices far exceed the previous record levels of about $490 a tonne seen in December 2004 and have reignited concerns that rising construction costs could bump the region's booming construction sector. In April, Dubai announced that it was lifting import tariffs on the material in order to rein in rising construction costs in the emirate. "The reconstruction of New Orleans following Hurricane Katrina has been a contributing factor," says Matthew Watkins, senior consultant at London-based Commodities Research Unit (CRU). "But there is also strong demand across the US from non-residential construction and from the automotive sector."

However, Watkins believes it is supply-side shortages rather than increased demand that is behind the increases, and that prices may correct before the autumn. "In 2004, the increases were driven by strong demand from the US and China," he says. "This time constraints on the supply side have been more of a factor. There have been major outages in capacity caused by accidents at mills in Brazil and Ukraine, strikes in the US and Mexico and production problems in Europe. We expect the prices to come down a bit sooner than the fourth quarter. Supply-side disruptions tend to cause short, sharp movements."