Sulja Bros. Building Supplies, Ltd (SLJB)

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Oct 16, 2006 Asia : The Gulf Today

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Business

Ways to hold price line

Construction material prices in the UAE are skyrocketing, as if to keep pace with the rising skyscrapers, to the chagrin of realty players. Producers should adopt new technologies to increase output and contractors ought to initiate long-term joint procurement strategy with major suppliers, suggests Bhaskar Raj

Construction material prices in the UAE are reaching out to the sky without any let up after a short stint of stability. The contractors are on the tenterhooks, the ripple effect of which reaches up to the last labourer. The rising costs are putting pressure on construction margin and Dubai has become the most expensive location in the region in terms of construction cost per square foot.

The market for the four prime construction materials, steel, aluminium, cement and wood, presents a world of wild fluctuations and demand-supply mismatches, according to the Dubai Chamber of Commerce (DCCI).

Steel

Steel production in the Middle East region increased 12 per cent in 2005, from 14.2 million tonnes in 2004. Against this consumption rose 37 per cent in 2005 from, 25.3 million tonnes in 2004. The region is experiencing a serious deficit of 18.8 million tonnes, which had to be imported with the consequence of a significant price increase. Prices of Hot Rolled Plates increased by 38 per cent in August 2006 compared to 13.6 per cent world wide.

Dubai is affected by the situation in the Middle East and the world. Due to the high consumption in the local market, steel prices had increased even sharper. For example, hot rolled plates prices increased by 45.2 per cent in August 2006. Dubai has recorded the highest increase in the prices of hot rolled plates during August.

In the world market, there is excess supply of 119 million tonnes in 2005, and from supply demand point of view it should make the price stable. However, prices have increased. For example, the price of hot rolled plates increased by 13.6 per cent during December 2005-August 2006.

World steel production was affected by the high prices of the iron ore, which increased by 71.5 per cent in 2005.

The price of steel in the local market has risen due to the increase in global demand and a decline in supply of raw materials from major source markets. Prices of almost all the steel products that are used in the construction market rose over the last five years. UAE, in general, and Dubai specifically, witnessed fluctuations in the price of steel during the period 2000-04.

Aluminium

The Middle East Market region contributed to the world aluminium production by only 4.8 per cent in 2005. The region continues to be a small player in the international aluminium market. Aluminum price has increased 24 per cent in August 2006.

In 2005, Dubai aluminium imports amounted to Dhs2 billion, of which, 50 per cent were raw materials. Exports stood at Dhs2.4 billion, while re-exports were only Dhs226 million.

Aluminum price has increased by 22 per cent in August 2006. Compared to the world and Middle East Markets, Dubai ranked the second in the price increase of aluminum.

In 2005, World aluminum consumption amounted to 31.6 million tonnes, which exceeded the production by 400 thousand mt causing a supply deficit that affected the product price internationally. This shortage resulted in an increase of the prices by 17.3 per cent in August 2006 over 2005.

The global supply shortages have exerted upward pressures on prices, which have also been felt in the Middle East.

Aluminium represents a major extraction and processing industry for Dubai. Dubai Aluminum Company (Dubal) has been a major player in the GCC aluminum industry. In 2005, Dubal's annual production capacity was 0.761 million tonnes. By the end of 2006, the company's annual production capacity is likely to exceed 0.871 million tonnes. The steep increase in international aluminum prices since 2003 have benefited UAE, in general, and Dubai, in particular, as Dubal is a major exporter of the metal. More than 92 per cent of the company's total production is exported to global markets ­ from China to North America. Other key markets include the Far East, Europe, the ASEAN region, the Middle East, the Mediterranean region and North America.

Cement

Cement production in the Middle East totaled 122 million tonnes in 2005, while consumption was estimated at 128 million. The region is facing a deficit of 6 million tonnes and this increased the price in the region by 10 per cent.

In Dubai, the total cement production in 2005 was estimated at 11.2 million tonnes, while the consumption was estimated at 12.8 million tonnes. This gap in the market covered through imports. Cement price in Dubai increased by 11 per cent in August 2006, showing that also for cement Dubai has the highest price increase compared to the Middle East and world markets.

The GCC countries faced a robust cement demand, which caused steep price hikes over the previous three years. During the year, cement production in the GCC was estimated at 44.1 million tonnes, up 7.5 per cent over 2004, while the consumption was estimated at 48.8 million tonnes, up 10.6 per cent over the previous year. The strong demand in GCC was primarily due to a strong pipeline of projects, which include projects in buildings, leisure and entertainment, and transportation infrastructure. Added to this was large investments in other sectors of the economy as well. A large chunk of these investments were in UAE.

The cement production in the UAE was estimated at about 12.6 million tonnes, while the consumption was estimated at about 14.6 million tonnes, in 2005. This high consumption is due to the construction boom in the country as a whole, and in Dubai, in particular, which led to a steep hike in cement prices since 2003.

World cement production has increased by 4.2 per cent in 2005 reaching 2.2 billion tonnes. On the other hand, consumption was estimated at 1.9 billion tones. Cement demand is growing faster than the supply and this will cause a deficit in the near future. Cement price increased by 7 per cent in the world market.

Wood

The Middle East Market region has only a small share in the world production due to the geographic nature of the region. The region's share in the world plywood production in 2004 was only 0.2 per cent. The region is dependent on the imported wood products. The surge in the construction activities across the region increased wood prices on average by 30 per cent in August 2006 over 2005.

The construction boom in Dubai has brought an unprecedented demand for wood based products. The value of wood imports increased from Dhs1.5 billion in 2004 to Dhs1.9 billion in 2005. According to the construction materials traders in Dubai, wood price increased by 23 per cent in August 2006 over 2005.

Increase of wood price in Dubai is higher than in the world market but less than the Middle East markets.

The main wood products that used by the construction sector are plywood, sawnwood, and wood based panels.

Due to the fastest rate of the deforestation in Indonesia, and to high consumption in China, in addition to losing wooded area in Switzerland, global wood prices had increased in August 2006 by 9.8 per cent over 2005.
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cg66's half of the business equation:

Posted by: cg66
In reply to: None Date:10/22/2006 5:52:43 AM
Post #of 127991

Hi all. First post but I've been following (and buying) for almost a month. This is my first penny so it has been really exciting (is it always this crazy?). Anyway in PV's post on the blog regarding the 98M contract he says the contract is with a company(s) in Polland - I made the assumption he means Poland and found the following link on the Polish cement industry. In 2005 they produced a little over 12M tonnes most consumed locally - they have the capacity to produce 20M tonnes/year.

http://www.polskicement.pl/3/3/artykuly/11_74.pdf

http://www.investorshub.com/boards/read_msg.asp?message_id=14197427