Clients launching projects in the GCC, acutely aware of how desperate contractors are for work, have been quick to exploit the economic slump, pressing for lower costs and shorter delivery times
Companies have so far been able to meet these demands due to the sharp falls in raw materials costs from the highs witnessed in mid-2008. Since the start of 2010, prices for most materials and labour have either remained static or continued to fall. The exception has been steel.
Since the scrapping of annual iron ore contracts in favour of a quarterly pricing earlier this year, steel production costs have soared. The price of iron ore has doubled since 2009 and steel manufacturers are passing the additional costs on to customers. Steel reinforcing bar (rebar) prices have risen by more than 50 per cent in Saudi Arabia, 40 per cent in Qatar and 30 per cent in the UAE since February. With rebar one of the highest-cost and most widely used materials in the construction sector, the increase will hit contractors hard.
Against this backdrop, those hard-won contracts will seem much less attractive. While other construction inputs such as cement and concrete remain low, contractors will be able to offset these costs to a certain extent. But should prices for these materials also climb, then the region’s contractors will find a return to healthy profits even further beyond their grasp.