Call for investments in building materials

The average price of cement in Dubai increased by more than 50 per cent in March 2008. (SUPPLIED)

With the real estate sector in the UAE booming, there is a need for greater investment in the manufacturing of raw materials for the construction industry to meet growing demand.

Dr Ahmad Belhasa, Chairman of the UAE Contractors' Association (UCA), said a large number of firms have been affected by the increase in the price of building materials. Projects do not finish on time and their costs escalate, which creates problems between contractors and project owners.

In such cases, Dr Belhasa has asked for the government to lay down a mechanism to compensate the affected contracting firms. He also called for the early implementation of the recommendations of a forum organised recently by the association in co-operation with UAE chambers of commerce and industry. The UCA, he said, attempts to create a balance between the interests of its members – contractors – and project owners.

Khalfan Al Kaabi, head of the Construction Committee of the Abu Dhabi Chamber of Commerce and Industry (ADCCI), attributed the rise in the prices of building materials to the boom in the UAE in general, and Abu Dhabi in particular, which has lead many contractors to take on more projects than they can handle.

Al Kaabi estimated the volume of the Abu Dhabi market at Dh920 billion and said it was necessary to monitor the rise in the prices of building materials.

He called for the establishment of a public joint-stock company for supplying building materials to meet the growing demand.

Meanwhile, to assess the situation, the Dubai Chamber has conducted a study at both the international and domestic levels in the construction materials market, especially for steel, cement and aluminium.

The study found that in 2007, global steel supply totalled 1,343.5 million metric tonnes (mt) and the demand amounted to 1,198 million mt causing an excess supply of about 146 million mt. According to the report, this situation should make the price at least stable.

"Steel has different products categories, such as stainless steel and composite carbon steel, among others. Stainless steel prices declined in the first quarter of 2008 due to the global decline in demand in most of the consuming countries, except the emerging economies. On the other hand, composite carbon steel prices increased by 23 per cent in the first quarter of 2008 due to the price rise in coking coal. On average, all steel products prices declined by nine per cent in first quarter of 2008," the study said.

In 2007, steel production in the Middle East increased by seven per cent, reaching 16 million mt. Steel consumption in the same year was estimated at 39 million mt, causing an excess demand of 23 million mt, which had to be imported. Due to the high consumption in the region as a whole and particularly the local market, steel prices rose sharply.

On average, all steel prices increased by 22 per cent in the first quarter 2008 compared to the average price in 2007. Some steel product prices increased sharply, such as hot rolled coils (37 per cent) and cold rolled coils (33 per cent).

Regarding aluminium, the report found that in 2007 the world market had an excess supply of about 3,000 mt. The fears of shortages in supply due to the energy cost have raised aluminium prices in the global market.

In 2007, the region's contribution to the world's aluminium production was only five per cent. It continues to be a small player in the international aluminium market.

However, during the period 2002-2007, Middle East's aluminium production increased by 42 per cent. The UAE's aluminium production was estimated at 0.9 million mt, which is expected to reach 2.5 million mt in 2010 after the newly announced aluminium smelters enter into production. In 2007, Dubai's aluminium imports amounted to Dh3.5bn of which 50 per cent was ore. Exports and re-exports recorded Dh3.1bn in the same period, including from the free zones.

Compared to the world and the Middle East market, Dubai ranked first in terms of aluminium price increase, as on average, the price of aluminium has increased by almost 23 per cent in the first quarter of 2008 compared to average price in 2007.

On cement, the study found that global production increased by two per cent in 2007, reaching 2.6 billion mt. Consumption was estimated at 2.45 billion mt.

The demand for cement is growing faster than supply, the study found. Global cement consumption is expected to reach 3.2 billion mt by 2015. This will cause a shortage in the near future. On average, world cement prices increased by almost eight per cent in 2008.

The Middle East's contribution to global cement production was only 5.5 per cent in 2007 or 1,345 million mt. Despite the increase in the Middle East's cement production, demand still remained higher than production. Cement consumption in the Middle East was estimated at 1,400 million mt in 2007. As most of the new construction projects in the Middle East are in the UAE, the country's cement market is facing great pressure to meet this huge demand.

The UAE's total cement production in 2007 was estimated at 13.2 million mt, while the consumption was estimated at 18.2 million mt and forecasted to reach 23 million mt in 2010. This gap is covered through imports and cement imports grew by more than 47 per cent in 2007, from Dh505 million in 2006 to Dh743m.

Although the government capped the cement price at Dh295 per tonne in July 2007, the price rose by the end of the year. The average price of cement in Dubai increased by more than 50 per cent in March 2008. Other construction materials that use cement as an input, such as concrete and ready-mix, also witnessed correspondingly huge price increases.