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Tue 25 May 2004 04:00 AM

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Strong global demand is affecting local equipment supply

Globalisation has directly affected the market for second hand equipment. Regional markets can no longer sustain price levels that are significantly different to other markets as both buyers and sellers scour the Earth for the best deals. Construction Week discovers how this is affecting the market for used equipment in the UAE.

Strong global demand is affecting local equipment supply|~|Used Plant body.jpg|~||~|Like last year, the market for second hand equipment in the UAE is buoyant this year. With so many major projects underway in the UAE the demand for used equipment is expected to remain high for some time to come. The used market is also able to avoid passing on the cost of high steel prices to the customer for longer than the OEMs, making used prices more competitive when compared to new. There are, however, a number of underlying issues that could mean the market is about to change. “It’s certainly a very interesting marketplace right now,” says Stephen H. Branch, divisional manager Middle East, CIS, Southern Africa, Ritchie Bros. Auctioneers. At present the market at a micro level is performing well for both buyers and suppliers, but on the macro level the market in the UAE is not keeping up with the rest of the world. This is also true of the region as Dubai and Sharjah act as a regional hub for used equipment. “We have over 5 000 customers from different countries around the Middle East,” says Abdul Qader A. Mohamed Al Ali, president, Al Wasit Machinery.This is because used equipment prices are all relative to what they cost in a different place or a different time. The price of used equipment in the UAE has increased in monetary terms, but once a number of factors are accounted for the relative price has remained stable over recent years. Despite this relative stability, the market is expecting some price increases going forward. Just as most companies engaged in the second hand equipment trade predicted, local demand is again extremely high this year. This should, in theory, place upward pressure on pricing but so far supply has matched demand. This is partly because of stronger than expected supply in North America. Demand there is beginning to pick up and many can’t wait for new equipment. This means that pricing is strong and attracting supply. Companies have now got through the bad times and now feel it is time to be active again, at the same time interest rates are still low enough for people to get into the market. “There is a nice exchange happening in North America right now, it’s a win-win situation and I think it will continue,” says Branch. North America is not alone. Other regions are also experiencing strong demands for used equipment. Strong demand means stronger pricing, so there are no markets offering relatively cheap equipment. The current strength of the Euro has effectively meant that cheap equipment can no longer be found in Europe. Although prices have changed little in local currency, in Dollar terms they have increased by some 20% just on the rate of exchange. “I expected that the Euro/Dollar exchange rate would come into play this year. I didn’t expect it last year because it is just too soon for this market to change, there is a degree of price stickiness because the market has enjoyed good pricing and is unwilling to change,” says Branch. The auction houses in Japan, many of which are run by manufacturers themselves are also experiencing strong pricing, largely on the back of strong demand from China. Japan is no longer a source for cheap equipment. “I don’t think there is anywhere that you can go to get relatively cheap used equipment,” says Branch. How does this global demand affect the UAE? Strong global demand means that world prices are relatively high. Naturally sellers are drawn to the markets with relatively higher pricing. Local prices are still as good as they have been but compared to other markets in relative terms they are no longer as good. The construction industry here is not paying the premium that other markets are. Low prices in global terms mean that sellers are less attracted to the market because they can get more money for the same equipment elsewhere. If you don’t pay the price you don’t get the product. Supply is therefore becoming increasingly difficult to source for this market. With such high levels of construction activity in the UAE, the market can simply not afford to do without equipment. This will create upward pressure on relative pricing so that equipment will be sucked in from the global market place. “The market has to come to the realisation than they will have to pay more for good equipment,” says Branch. Demand within the UAE has also changed as the construction market matures. The market is now demanding better equipment than before, not necessarily newer, but better. “Four or five years ago the market was not that picky when it came to specifications, but now they are much more interested in quality,” says Branch. In terms of relative pricing this demand means that the prices fetched for good quality older models of equipment beats world prices. The type of equipment that the market wants has also changed. The demand for smaller type machines such as telehandlers, forklifts, skid steer loaders, and backhoe loaders is steadily increasing. Smaller equipment is needed when a market matures and takes on smaller intricate jobs in downtown areas. One type of used equipment that remains strong sellers are cranes, perhaps reflecting the growing trend to build tall.||**||

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