The UAE's construction sector, currently enjoying a boom, is facing the pinch of the steep price rise in building materials, said industry officials.
Dubai's total imports of building materials are estimated at Dh15 billion, according to industry estimates. Over the years, local cement and ceramics manufacturers have managed to meet part of these needs.
However, imports of building materials have increased due to the unprecedented boom witnessed in the UAE, especially Dubai.
Prices of certain building materials have skyrocketed while others witnessed a moderate jump due to a number of factors, including high freight charges and an increase in demand in the international market. These include materials ranging from steel products to white wood, among many others.
Thus, many contractors are expected to make losses, while the small operators are likely to be the worst hit, say industry sources.
"An increase in global demand as well as the hike in freight charges have mainly caused the surge in building materials prices," said Ibrahim Yousuf Al Rahmani, president of the Dubai-based Building Materials Group and managing director of Al Rahmani General Trading Co.
"Freight charges increased between 25 and 50 per cent in some cases. Most of the white wood comes from places as far away as Chile, for which we have to pay a heavy freight charge.
"This has come at a time when the construction sector is enjoying a boom with so many construction projects being carried out. Most of the construction firms are feeling the pinch of this price hike and many are expected to incur losses if the prices do not come down."
Especially hard hit will be those companies who had won bids for projects while the prices of building materials were low, but which rose when they began to execute the projects.
In such a situation, there is no provision for compensation, forcing contractors to take precautions.
"While the large operators have the capacity to absorb this shock due to better inventory, manpower and risk management capabilities, unfortunately, smaller operators cannot sustain such pressures. "There will be delay in payments, non-payments and an increase in dud cheque cases.
"I suspect a number of small contractors will run into debt owing to the current situation. As a building materials supplier, we are also sharing the pain in terms of having to extend credit facilities. The money remains stuck in the market, while we maintain the supply chain."
Al Rahmani has over 11,000 types of items in store, supplying to over 3,000 customers on a daily basis.
With 400 employees spread across five large distribution outlets, the company is expanding its bottomline with over Dh400 million in annual turnover. Meanwhile, according to MESteel, an industry portal, the Middle East's steel output increased by 7 per cent in February this year compared with February last year.
In February this year, Turkey produced 1,529 tonnes, up by 11.8 per cent, while Iran produced 693 tonnes, up by 8.3 per cent.
"World crude steel production increased by 12.1 per cent, compared with February 2003, to reach 79.5 million metric tons (mmt) in February 2004," said its latest report.
"Production in Asia again showed strong growth, with a total production of 36.7 mmt in February, a rise of 19.8 per cent compared to February 2003. Out of this, China produced 19.7 mmt of crude steel, an increase of 31.5 per cent. Russian crude steel production rose by 10.6 per cent to 5 mmt in February 2004."
However, it painted a positive outlook for the second quarter of this year for the region's steel demand.
"Exports for the next month are foreseen to be positive worldwide, with strongest pick-up in Africa and the Middle East.
"General inventory levels remain low. Demand in automotive, appliances and the construction sector is expected to remain strong for the next three months at least.
"China is expected to consume an extra 50 million tons of imported iron ore and an extra 2 million tons of steel scrap in 2004, thus keeping up the pressure on raw material supply.
"After the recent slowdown in Chinese demand, buyers there are expected to return to the market, which might fuel new strength in prices, after the recent slight corrections," it said.
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