GCC steel, cement demand seen down 20% in 2009

The GCC is likely to see a 20 percent decline in demand for steel and cement in 2009, a result of the severe slowdown in the region's construction industry, Deloitte Middle East has said.

In a report called The GCC Powers of Construction 2009, analysts predict that the demand will pick up a little in 2010 which will see a two percent growth.

And as the region's recovery from the global economic turmoil continues in 2011, the raw materials for construction projects are projected to see a growth of about 10 percent.

At the height of the boom in 2008, the Middle East was the largest importer of steel, when demand rose 39 percent over 2007. The UAE was the largest steel importer among Gulf countries, the report said.

"For a while it looked like the Gulf would be unaffected by the global economic downturn and then in the last quarter of 2008 we saw construction projects worth trillions of dollars being postponed, with the UAE being hardest hit," said Cynthia Corby, Deloitte Middle East's audit partner in the UAE, in the report.

"This, and less demand globally, resulted in the prices of steel and cement plunging by 70-80 percent respectively," she said, adding that demand had started to pick up again since April 2009."

Corby said future growth in the GCC's construction industry would be more focused away from Dubai and towards Abu Dhabi, Saudi Arabia and Qatar.

But she warned that the industry's main players would have to deal with a totally different landscape post-downturn with advanced payments being a "thing of the past" and contractors having to "carefully manage their project cash flows".

She added that it was not all doom and gloom for the industry in the region.

"For a while the industry and the markets seemed to be in shock and everything seemed to grind to a halt, but now that everyone has had a chance to sit back and assess what has happened we see some positivity creeping back into the industry with big projects coming on board in Abu Dhabi, Saudi Arabia and Qatar stimulating this optimism for the GCC," she added.

The Deloitte report said it was estimated that oil exporting countries had amassed $1.3 trillion in oil earnings between 2004-2008 and that government spending on infrastructure and industrial projects "will also almost certainly create the demand for contractors and commercial companies to grow".

Deloitte predicted that luxurious real estate developments will be scaled down to meet the demand and encourage investment in property which will generate more realistic returns.

"The construction industry will no doubt see consolidation over the next one to five years with the smaller players finding it difficult to weather the challenges...We are not sure if we have seen the full effects [of the crisis] – but it would appear that the effects have now bottomed out," Corby added.

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