IN NUMBERS

$10.1bn: Construction contracts awarded in the UAE in the first three quarters of 2011

$17bn: Contracts awarded in the UAE in the first three quarters of 2010

$29.6bn: Contracts awarded in Saudi Arabia in 2011

Source: MEED Projects

A slowdown in the region’s construction sector largely due to the poor performance of the global economy has halted the rise in steel prices and contributed to most other construction material costs remaining flat.

The political unrest that has spread throughout the Middle East and North Africa this year has also had an impact on the region’s construction sector with many more projects being put on hold. The slowdown in construction activity has resulted in steel prices dropping in the UAE and Qatar.

Turkish firms are quick to drop prices, then contractors put local suppliers under pressure to do the same

Local steel supplier

The price of cement and other key construction materials have remained relatively stable since March, according to the latest survey of material costs in the Middle East conducted by the Dubai office of UK consultant Davis Langdon. Lebanon was the only country to record a noticeable increase in the price of materials and labour costs.

Rebar falls in the UAE

The price of reinforcing steel bars (rebar) in the UAE rose 17.7 per cent from $695.5 a tonne in October 2010 to $845 a tonne by the end of the first quarter of 2011. However, a slowdown in the UAE’s construction sector has resulted in the price of rebar falling about 5 per cent to $785-830 a tonne by the end of the third quarter, according to Davis Langdon.

“The UAE hasn’t lived up to expectations. Most of the big projects in Abu Dhabi have been cancelled or are going to completed over a longer period of time,” says one source in the UAE’s steel industry.

The spending cutback in Abu Dhabi has resulted in the total value of contracts awarded in the UAE for the first three quarters in 2011 falling by 41 per cent on the same period in 2010. According to projects tracker MEED Projects, during the first three quarters of 2011, $10.1bn-worth of construction and infrastructure deals were awarded in the UAE, compared with $17bn for the first nine months of 2010.

We are still waiting to hear about the World Cup projects and the market has been quiet

Doha-based contractor

The reduction in the price of steel in the UAE has also been attributed to cheaper steel imports entering the GCC from Turkey and Ukraine. “Turkish companies are always quick to drop prices, so then contractors put local suppliers under pressure to do the same,” says a local steel supplier. “There is also an increasing amount of steel entering the GCC from Ukraine.”

Lebanon was the only country to record an increase in the cost of rebar. The average price of a tonne of rebar rose from $740-760 in March to $760-780 in October as a result of the state pushing ahead with plans to rebuild infrastructure following decades of neglect.

Over the same period, the price of rebar in Saudi Arabia, the region’s biggest construction market, remained stable at $770-960 a tonne.

With the exception of Qatar, the price of structural steel remained flat in all countries surveyed. In Qatar, the price of structural steel fell from $1,507-2,195 a tonne to $1,192-1,510 a tonne. Despite Qatar’s massive World Cup construction programme, most projects are still in the design stage and few have been tendered yet. Meanwhile, major industrial projects in the country have been completed reducing the demand for steel.

“We are still waiting to hear about the World Cup projects and the market has been quiet,” says a Doha-based contractor. “But prices should rise when the construction projects start.”

Cement prices flat

In the five countries analysed by Davis Langdon, there was little change in the price of cement from March to October. As with rebar, Lebanon was the only country to record an increase in the price of cement, with the price of a 50kg bag of cement rising from $5 to $5.20.

Surprisingly, cement prices have remained flat in Saudi Arabia, despite the kingdom pushing ahead a construction and infrastructure programme of unprecedented size. For the first three quarters of 2011, the kingdom awarded $29.6bn-worth of construction and infrastructure contracts, more than 55 per cent higher than the $13.2bn of contracts awarded for the same period in 2010. The largest project in the Middle East is under construction in Saudi Arabia – the $93bn King Abdullah Economic City.

Saudi demand for cement

Rising demand has resulted in cement sales in the kingdom increasing by 15 per cent year-on-year to 4.2 million tonnes in July, according to local investment house NCB Capital.

Despite this, the price of a 50kg bag of cement in the kingdom has almost halved over the past 12 months, falling from $6.6 in October 2010 to $3.6 currently. The price of ready-mix concrete in Saudi Arabia has remained at about $55-70 a cubic metre in the second and third quarters of the year.

“There is strong demand in Saudi Arabia, but there is still an oversupply, that’s why prices haven’t gone up this year,” says a cement analyst in the kingdom. Recent years have seen considerable investment in new cement capacity in Saudi Arabia. Despite the oversupply, there is currently a cement export ban in the kingdom, which prevents cement producers from selling their product abroad. Bahrain is the only country exempt from the cement export restrictions, which have been in place in since 2008. The restrictions were originally introduced as a result of concerns over a domestic cement shortage.

Bahrain, however, has seen a major slowdown in its construction sector since the start of popular unrest earlier in the year. The political instability has prevented private real-estate projects, in particular, from moving ahead.

Ready-mix prices in the UAE

The slowdown in project awards in the UAE has also resulted in the price ready-mix concrete marginally dropping from $60-75 a cubic metre to $55-68 a cubic metre between March and October.

Cement prices in Qatar remained relatively flat at $3.84-4.11 for a 50kg bag of cement and $88-100 a cubic metre for ready-mix concrete. As with steel, the price of cement in Qatar is expected to rise in the coming years as the country pushes ahead with its 2022 World Cup infrastructure programme.

Stable oil prices in the second and third quarters of 2011 resulted in the price of diesel remaining flat in the Middle East. Again, Lebanon was the only country surveyed to record an increase, with the cost of a litre of diesel increasing from $0.67 a litre to $0.88 a litre. The increase makes Lebanon the most expensive place to buy diesel in the region, the UAE comes second, with a cost of $0.80 a litre. Saudi Arabia is still the cheapest country to buy diesel in the region, with the price of fuel remaining at $0.1 a litre.

Lebanon was also the only country to record an increase in labour costs, with workforce overheads remaining unchanged in the other countries surveyed.

In Lebanon, the average monthly salary of local project managers increased from $4,200-5,000 to $4,500-5,500 between March and October. The wage of expatriate project managers increased by an average of $500 a month, as did the salary of expatriate site engineers.

Labour costs

Stable labour costs reflects the slowdown in the region’s construction sector following the collapse of the region’s real-estate market in 2009. During the UAE’s construction boom, the average salary of an expatriate project manager doubled from $11,000 a month to $21,000 a month by July 2008.

However, with the majority of the country’s megaprojects cancelled or downsized in the wake of the global financial crisis, the demand for skilled expatriates in the construction sector eased. As a result, thousands of workers in the construction sector have been laid off and wages for expatriate project managers in the UAE have fallen to $11,000 a month in 2011.

Regional analysts do not expect any significant changes in material or labour costs in the next 12 months, with Abu Dhabi continuing to cut back on spending and Qatar’s World Cup construction programme still in the early planning stage.

“We don’t expect [material] prices to increase until 2013,” says one regional cost analyst. “There won’t be a change in costs until there is more demand throughout the region as a whole, and we cannot see where this is going to come from in the next year.”

Click here for MEED’s 2011 Top 100