Concrete concerns

Over the past few years the demand for concrete soared to levels that far outstripped the available supply. The result of which meant that the cost of this material grew exponentially, as contractors and developers paid the price to ensure that their project schedules could be met. To counter the effects of demand, price caps on cement – the primary raw material of concrete – were introduced in the UAE to try to control the price rise and inflation, and manufacturers across the region expanded their operations and cement production.

But after just a few months into 2009 there has been a sharp downturn in demand from certain areas of the Gulf as major projects are cancelled or put on hold.

This has meant welcome relief to buyers as material costs have inevitably fallen and some concrete manufacturers are also welcoming the slowdown as a time to take stock and make changes including the introduction of new products, a move towards more environmentally friendly technologies and a focus on other sectors within the construction industry. But how much have concrete prices actually been affected and what does the future hold for the sector?

Price changes

Made from a combination of materials, concrete prices are intrinsically linked to the cost of these raw components, the largest of which is cement. Other factors such as transportation also play their part in the price of concrete as its short shelf-life means it is susceptible to immediate changes in, for example, the cost of fuel.

“For all concrete products, the basic raw materials are cement, sand and aggregates; as all of these prices have fallen, the price of concrete products in general have fallen accordingly,” explains Dubai Precast general manager Matti Mikkola. ”Cement plays the major role, with a cost factor of more than 40%,” he adds.

But just how dramatically have concrete prices fallen and is this set to continue? “In general, it appears that prices haven’t fallen as sharply as expected following the global economic downturn. In theory prices should have fallen significantly, but they haven’t. We’re not seeing [drops in cement prices and demand] being translated by contractors.

We should be looking at a 40% decrease in price between August and now and we’re not,” reports a spokesperson from global construction consultancy Davis Langdon. In fact, the cost of C45 between August 2008, when prices were at their peak and April 2009 has dropped by only 9% in the UAE according to statistics gathered by Davis Langdon.

There is no overall evidence as to why a steeper fall in price has not occurred, however one of the most plausible theories is due to the over-inflated prices of the previous years. “In 2008 there was a very sharp increase up until August/September, and then the Government imposed an AED 360/tonne price lock,” explains the Davis Langdon spokesperson.

“The change [has been] more acutely felt in the UAE, where price fluctuation has been the most dramatic,” states Gulf Precast Concrete technical and commercial manager Elias Seraphim. “Cement price fluctuation has affected the price of all concrete products, increasing in 2008, then decreasing by 2009 and [it has been] stable for the last three months,” he says. “This drop has been more drastic than we have experienced in the last ten years – obviously it is partly caused by the dramatic and sudden rise last year,” adds Mikkola.

The number of projects construction companies are undertaking and the difference in demand and supply are also factors in the price, reports Plaxit Dry Mix sales and marketing manager Manoj Kaipura. The relatively high availability of work in Abu Dhabi has also kept the prices up in the Emirate as contractors have not yet cut their overheads in the same way as Dubai-based firms have, but this may be set to change reports Davis Langdon. “In Dubai contractors have reduced their margins and slashed their overheads and profits; in Abu Dhabi they haven’t,” the spokesperson explains.

“We predict that an influx of Dubai contractors into Abu Dhabi will push all prices down. At the end of this year and beginning of next year prices will fall [in Abu Dhabi],” Davis Langdon’s spokesperson added. “Overall we are expecting costs to go down in 2009.”

Recent research figures announced in an industry report by Global Investment House (GIH) back up this prediction. The report showed increased revenues for cement firms across the GCC, but declining profits foresees a further downturn in fortune for cement firms due to the combined drop in demand and recent expansion of cement capacity in the region. “We expect an oversupply of cement in the UAE at the end of 2010 or beginning of 2011,” GIH reports.

Supplier solutions

So what are concrete manufacturers doing to ensure their future development while aiding contractors in the completion of projects? As well as new products and market expansions, one of the main moves has been to take the opportunity given by the slowing demand to take stock of operations.

“We are ensuring that we are as efficient as possible in everything we do, but not to the point of reducing our service or quality,” reports Mikkola. “We are continuously sourcing for the most competitive suppliers of raw materials,” he adds.

Gulf Precast Concrete is making similar moves, although to date the firm has not been greatly affected by price changes. “We have been streamlining our costs and renegotiating supplier contracts,” reports Seraphim. “All our new contracts have escalation clauses and our contracts automatically adjust to the new prices,” he adds.

Dubai Precast cites cost and time savings, plus greater quality control as some of the primary benefits of using precast concrete items, rather than constructing the same elements on site. The firm manufactures a wide range of precast, prestressed, hollow core slabs and other building components such as beams, facades, walls and staircases, as well as infrastructure products.

Other time-saving products now offered by firms include self-compacting concrete. Available from several concrete manufacturers including Universal Concrete Products (Unimix), Unibeton and Lootah Group’s National Ready Mix Concrete Company (NRC), these products have been developed to flow into position and set to their required strength without the need for any on-site compacting. This greatly reduces both labour needs and on-site time for the concrete pour.

As firms prepare for the future, in addition to predictions of an overall construction market recovery by 2011, some are finding that demand is currently remaining at levels that justify further expansions. In January, Conmix announced that it is investing US $9.5 million to set up its fourth dry mortar plant in the UAE. Located in the Al Ghail industrial area of Ras Al Khaimah, construction of the plant is now underway and it is scheduled to be fully operational by mid-2009. The plant is expected to have an annual production capacity of 300,000 tonnes.

“In spite of the present economic scenario the new plant is not only a sound investment for expected future growth in business for Conmix, but will also serve as a supplement to the infrastructural development of the UAE and neighbouring countries,” explains Conmix CEO Lothar Hellenkamp. 

In November 2008, NRC also grew its operations, adding two new plants in Rashidiya and Jebel Ali. The firm has been operating in the region for more than 32 years and has supplied more than 15 million m³ of concrete to projects across the UAE. Its plants in Dubai, Jebel Ali, Arabian Ranches, Sharjah, Ajman, Abu Dhabi, International City, Hamriyah Free Zone and JAFZ south have a total capacity of over 1200m³/h.

Plaxit too is seeking expansion. “We are looking forward to developing other foreign markets including GCC and MENA countries,” reports Kaipura. “So far we have not been affected by the price changes, we have neither reduced our prices nor increased them in the last two years,” he adds. Kaipura credits this stability to the fact that many of the projects on which the firm is working are at the completion stage.

One of the most prominent changes throughout the Middle East’s construction sector over the past year or so has been the growing demand for so-called green technologies. And with concrete a major component of most structures, the need for environmentally friendly alternatives is evident and manufacturers are beginning to respond.

“With the movement to fight global warming, government policies call for the use of more ecologically friendly concrete; only technologically advanced ready mix suppliers, including Unibeton Ready-mix can give the best solutions,” stresses Unibeton Ready Mix technical and sales operations manager, Dr Denis Beaupre.

In a move to increase its environmentally friendly options, Unibeton has recently signed an exclusive partnership with US-based specialist systems provider iCrete to offer a low carbon emission concrete solution. iCrete is a clean-technology provider of advanced concrete production systems and the partnership will see Unibeton offer low emission products for similar prices to conventional concrete.

The difference in the environmental impact of products is down to the bonding agents used. “Concrete is essentially made up of solid matter and the bonding agent that glues the particles together. For centuries, the proven bonding agent has been cement, which is the world’s second largest contributor to the noxious greenhouse gas emission, carbon dioxide,” explains iCrete CEO Juan Carlos Terroba.

“Fundamentally, to reduce these emissions scientists have looked at using bonding agents that do not emit carbon dioxide instead of cement and the challenge has been to retain the characteristics of strength, shrinkage, durability and permeability, which are required to build taller and more complex buildings of the day,” adds Terroba.

“We are now able to further optimise on a wider variety of concrete mixtures and save resources. By using improved quality control equipment we can also reduce waste at site,” explains Beaupre. “When specifications are adjusted for these new developments, savings can be achieved or better concrete can be produced at no extra cost.”