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Sat 22 May 2004 04:00 AM

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Steel prices have peaked, but cement continues up

Building costs are jumping by 20 to 30% in the time between design and tender

Steel prices appear to be softening at last, but the price of concrete and other raw materials continues to cause concern. Numbers reported by Construction Week and www.mesteel.com show a decline of 3% in average steel prices across various types of steel, mostly in reaction out of reports coming from China.

This level of fall does not yet represent a substantial decline, but it at least shows that prices have stabilised and are softening.

According to Abdulla Al Zamil, the chief operating officer of Zamil Industrial Investment Company, prices are expected to soften further: “Prices have gone up in the last few months, but keep in mind the announcement made by the Chinese premier. When he announces something it is not a wish, it is an order. He says that the Chinese economy is expanding too fast and it has an inflationary effect and that he is pre-empting it. If that happens and I think it will…you already saw it the day he [Chinese premier] said it, aluminium and copper went down and steel prices stabilised. So, if the Chinese economy does slow down, then commodity prices will go down,” Al Zamil points out.

Prices of other basic raw materials continue to be a concern, particularly for cement and concrete products. These do not appear to be headed downwards, and, although steel might be turning downwards, current market prices are still very high.Demand is fueling price escalation. A leading contractor told Construction Week that steel was being quoted at an average of Dhs2200 a tonne, while steel supplied by Qatar Steel was drawing a premium at Dhs2400 a tonne.

“It is a seller’s market,” adds Basil Akram of Al Rashed Contracting Company.

The problem is that most of the major on-going projects in and around the Gulf, and particularly in Dubai, are now at a stage where the hole is there in the ground, and to avoid cost escalation because of delays, it needs to be filled up with concrete and steel, the prices of which are both at recent highs.

“There is an enormous amount of work that is currently going on and an enormous amount of additional work that is planned. It is putting pressure on the marketplace in terms of price increases,” says Keith Ridgway, executive director of Khansaheb Civil Engineering and managing director of Interserve International.

Steel prices are reported to have gone up by more than 50% in the past few months and concrete prices by 25-30%, marketmen say.

Ammar Al Assam, director for business development at Dewan Architects & Engineers, says the main problem that affects the contractors directly is that of steel and cement prices. “I know of a project that was priced at Dhs80 million. But it went to tender at Dhs110 million. For a client, to take a 30% hike kills him. It is a major problem,” Al Assam says.Steel prices might be on there way done now, and in anycase are more of a global problem.

Cement and concrete prices though are local problems. A 50 kg bag of cement was quoting at Dhs6-7 some six months ago. Recently, it was being offered at Dhs12.50-12.75. One tonne of mixed cement some six months ago was at Dhs125-130. It went up to Dhs160-180 and then to Dhs250 and is still going up, said a leading contractor. “The price increase in cement is almost every week,” he added.

Alarmed, the UAE Contractors Association recently held three consecutive meetings in Abu Dhabi, Dubai and Sharjah to review the situation. It blamed building material suppliers and urged authorities to intervene, saying that if the price rise was not controlled, it will seriously harm the industry. However, the UAE is committed to a free market economic model and no help may be forthcoming from that direction.

Steel prices may be expected to ease off, but with growing air and noise pollution concerns pushing concrete and cement factories away from population centres, limited supplies and a growing market demand both in the UAE and in the region, prices of cement and concrete will stay hard for some time to come.

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