Among the companies that have suffered most over the past year are suppliers of construction materials in Dubai. The cost of raw materials soared in 2008 on the back of the regional building boom, but crashed in the second half of the year as panic gripped the market. The price of steel reinforcement bars (rebar) in Dubai stood at $770 a tonne in January 2008, and by July it was $1,517 a tonne. But by March 2009 it had plummeted to $420 a tonne.

This rollercoaster ride was shared by all commodities to a greater or lesser degree, as consumers held off from buying amid the uncertainty. Manufacturers experienced a downturn in sales as customers used up their existing stocks instead of placing new orders, and prices fell.

To stem the erosion in prices and to prevent oversupply, manufacturers in many sectors scaled back production. In Ras al-Khaimah, RAK Steel stopped production in September and October at its 500,000-tonne-a-year (t/y) plant, while in Dubai, Al-Khaleej Sugar Company cut output at its refinery to 60 per cent of its 1.5 million-t/y capacity in early 2009.

For many, the final quarter of 2008 and first quarter of 2009 will rank among their worst trading periods on record. Saudi Basic Industries Corporation (Sabic) made a net loss of SR973m ($260m) in the three months ending March 2009, its first quarterly loss in seven years, having already booked a 96 per cent drop in net profit in the previous quarter.

The firm blames its performance on lower prices for its products as a result of the downturn in the automotive, construction and electronic industries. Nonetheless, Sabic says it maintained production levels throughout the crisis and, to encourage buying activity, is being flexible with its customers over payments.

In the UAE, Dubai Aluminium Company (Dubal) has also resisted pressure to reduce its production despite a 30 per cent fall in orders from core customers in the Far East automotive industry and the local construction sector. In May, Abdullah Kalban, chief executive officer of Dubal, said the company had responded to the downturn by changing its product mix to develop new markets for its metal.

Despite initial fears that the downturn could be protracted in the region, signs of recovery have begun to appear this year, driven by a push in the construction industry to move ahead with projects before the arrival of the summer and Ramadan. Manufacturers report a revival in demand for metals, which has led to a small rebound in prices. After bottoming out in March, rebar prices in Dubai rose above $500 a tonne in May.

While prices are far from their highs of last year, such a rebound offers hope for producers. Overall, though, the Middle East has been much less affected by the economic crisis than some other regions. Around the world, manufacturers that have been forced out of business have tended to be ones that were operating older, smaller and less efficient plants. Facilities in the Gulf are generally among the most modern and competitive in the world.

Furthermore, massive government infrastructure spending has prevented demand dropping off as sharply as elsewhere in the world. Cement sales in Saudi Arabia hit record levels in March this year, driven up by domestic demand. Some 3.38 million tonnes of cement were sold into the domestic market, 13.6 per cent more than in the same month in 2008.

The willingness of governments to support their economies and local companies means many industrial firms in the region are in a better position than their Western counterparts to withstand the market volatility. Heavily hit by the crisis, UK/Canadian aluminium producer Rio Tinto Alcan was forced in December 2008 to drop plans to take an equity stake in an integrated aluminium project in Saudi Arabia being developed by Saudi Arabian Mining Company (Maaden), but the Saudi firm is pushing ahead.

Firm in the belief that the region’s rampant economic growth will resume once the financial crisis is over, Gulf producers have not allowed their expansion plans to be derailed.

In April, Hisham al-Hamili, general manager for metals at Saudi Basic Industries Corporation (Sabic), said the company still intended to increase its capacity to produce long and flat steel products to 17 million t/y by 2020, from about 5.5 million t/y today. In the same month, Dubal announced it was taking a 19 per cent stake in a joint venture to develop a 1.86 million-t/y alumina refinery in Brazil. Its partners in the project are Brazil’s Vale and Norway’s Hydro Aluminium.

The combination of state support and competitive modern facilities that underpins the confidence of the region’s industrial firms means they could yet emerge in relatively good shape from the crisis.