Import tax breaks fail to curb costs

20 March 2008
The UAE's suspension of import taxes on cement and steel will have little or no impact on prices, according to industry analysts and contractors.

On 16 March, UAE Vice-President and Prime Minister Sheikh Mohammed bin Rashid al-Maktoum issued a decree exempting cement and reinforcing steel from custom duties until further notice across the entire federation. The move followed a similar decree by Sheikh Mohammed for the emirate of Dubai a week earlier.

Real estate developers, which have experienced cost increases of up to 50 per cent in recent years, have welcomed the move, hoping it will help to bring down soaring costs that have threatened to erode profit margins on projects.

But industry analysts say that it will have little impact on rising prices. “Several clients have contacted me this week asking me if this means costs will now come down,” says one UK-based cost consultant. “I don't think it will.”

Contractors also do not expect any change in prices, although they say it may help to eliminate shortages in the future by increasing the supplies in the market. “It won't bring prices down,” says one contractor working in Dubai and Abu Dhabi. “As far as contractors working in the local market are concerned, 80 per cent of steel comes from the emirates, Qatar or Saudi Arabia and no one pays duty on that anyway because it comes from within the GCC.

“The same applies to cement. I don't know of any ready-mix company using cement from overseas. It all comes from places like Al-Ain and Ras al-Khaimah.”

Greater supply is still welcomed by contractors, many of which have been forced to wait for deliveries in recent weeks, as ready-mix companies struggle to meet their orders.

“On the positive side, the decision may open the market up for imports, and that will help the supply situation,” says the contractor. “But it won't bring prices down because exporters in China and India are already busy and charge international rates.”

The cement shortages have been caused by plants being forced to close down for maintenance after three years of oper-ating at full capacity. As more producers close down for repairs, shortages are expected until the summer.

“I expect that the cement shortage will last four to six months,” says the contractor. “Cement producers have been busy over the past two to three years so the production lines have not been able to shut down for maintenance, and they need to do that now.”

Steel prices are more difficult to predict as they are determined by the international market. Rebar (reinforced steel bar) prices have risen by more than 25 per cent in recent months.

“Three months ago, steel was about AED3,000 [$817] a tonne, the price now is AED3,800, and it may cross AED4,000 soon,” says the contractor.

The result for clients is that contractors will continue to include any risk of cost escalations in their tender prices.

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