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Cap may breed illegal trade
Cement traders have warned that the UAE government's attempt to stabilise rising cement prices by setting a price cap, could lead to the growth of a black market in the regional construction industry.
The Ministry of Economy has fixed the price of cement at US $80.31 (AED295) per tonne and around $4.6 per 50kg bag. The measure was brought in last week as spiralling cement costs caused by growing demand have led to major project delays.
But despite being beneficial in the short-term to contractors, there are fears that curbing cement prices could have a negative impact on importers, leading to a decreased supply in the market.
"The new capping policy could have some adverse incentives for importers," said Richard Feraud, managing director, Quadra Trading.
"Their profits will be affected by the fact that prices cannot go up. If freight rates continue to rise, local importers would be looking at a situation of tiny margins to import cement and those not interested in selling for the right price will stop importing. What will happen is, you will have less volume and the price pressure will come again because if there is an official price, there can also be a black market price."
Feraud added: "If there is a regulation on prices and there is a strong demand, people will find ways; either some players will stop importing or others will carry on importing and there will be some unofficial transactions. It's a matter of supply and demand. If the incentive is to deliver on time to a certain job in the construction sector, people will find cement. It could create a black market - this is the reality."
The price cap has been set until the end of this year.
"Many towers have been delayed due to a shortage of cement. Readymix can take up to 10 days to come to the site," said Ibrahim Al Shehi, director, Ministry of Public Works at a recent MEED conference.
"Many people have projects but can't get a contractor. As a ministry we have had to send a tender out three or four times as contractors can't put a figure on a project due to material prices rising, and we are suffering. Next year, there should be a decline in cement prices as capacity increases."
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