Manufacturers and used plant dealers enjoyed another bumper year in 2005. Growth was strongest in Qatar, where shipments of new equipment have risen by more than 500 per cent for some product categories since 2002 (see table). Demand continued to be strong in the other five GCC markets, achieving double-digit growth across most product categories.
Demand for large equipment – such as dozers, excavators and haulers – has traditionally been robust across the region, as a result of its well established quarrying industries and regular land-levelling projects. However, the market is now being bolstered by a wide range of large-scale real estate developments that require increasing volumes of equipment. Major projects such as the Palm islands in Dubai, the Wave in Muscat and the Pearl-Qatar require a huge number of machines to move the millions of cubic metres of material that make these developments a reality.
Smaller machines, such as skid steer and backhoe loaders, have not been big sellers in the past. This too is changing. Many of the biggest construction contracts awarded over the past year have been for large infrastructure schemes that require fleets of smaller machines to dig ditches and service drains.
It’s a trend that looks set to continue. Oman has started to develop its real estate offerings and Abu Dhabi is about to embark on several major new development programmes. Infrastructure projects in the established markets such as Dubai show little sign of slowing, as Dubailand begins to take shape and construction of the Dubai Light Rail link begins.
Tight construction programmes for most projects mean delivery dates are now more important than ever. Manufacturers and dealer networks recommend purchasing equipment, especially larger machines, as early as possible. In 2005 this proved to be sound advice. Supply constraints for tyres and castings meant machine deliveries were often delayed as manufacturers waited for crucial components to arrive. In extreme cases, equipment was even shipped on wooden wheels rather than tyres. Steel constraints are now subsiding, but tyre deliveries are expected to remain an issue for the three main producers throughout 2006.
The sheer scale of projects like Abu Dhabi’s Sheikh Mohammed bin Zayed city will ensure continuing demand for second-hand equipment. The used market in the past has been notoriously driven by price, but as projects become more sophisticated, additional emphasis will be placed on productivity and reliability. “The market is starting to change,” says a Dubai-based second-hand dealer. “Contractors now need newer models than in the past if they are to deliver projects on time. The older equipment that was used for basic beautification projects is no longer effective.”
Newer models are in short supply. Neither Iran nor Iraq allows the import of pre-2001 models, which drains regional supply and drives up price. Markets that do not have any restrictions, such as the UAE, then become magnets for old equipment at knock-down prices. Even older-model Caterpillar and Komatsu dozers, which have traditionally retained value, are now falling in price.
The region’s appetite for equipment is not exceptional. Global demand has risen steadily over recent years. US-based Caterpillar, the world’s largest producer of construction equipment, recorded sales of $36,339 million in 2005, 20 per cent up on 2004. Caterpillar expects to build on this growth, with sales and revenues of about $40,000 million forecast for this year. “2006 should be another year of excellent growth for Caterpillar,” chairman and chief executive officer Jim Owens said. “Most of the industries we serve are strong, and the fundamental economic picture remains positive.”
Other manufacturers have similar expectations. Sweden’s Volvo Construction Equipment saw net sales grow by 14 per cent to $1,255 million for the 2005 financial year and expects further growth in 2006.
Unlike other markets where the economic outlook is more fragile, the Middle East is expected to continue to grow and develop new projects on the back of high oil prices for the remainder of the decade. The future is positive, and with UAE-based Al-Wasit Machinery recently announcing plans to establish an assembly plant for construction equipment in Dubai, local production figures may be used to gauge regional demand instead of shipment data in the future.