UAE construction slowdown pushes material prices down

09 November 2011

Contraction of UAE construction sector causes steel prices to fall in third quarter

The slowdown in the UAE’s construction market has resulted in the cost of key construction materials falling for the third quarter.

In its latest UAE Market View Report, UK-based consultant EC Harris says that the cost of rubber, steel beams and copper fell in third quarter by 10 per cent, 2 per cent and 8 per cent respectively.

The reduction in material costs is a result of the contraction of the UAE’s construction market.

For the first three quarters of 2011, about $10bn-worth of construction and infrastructure deals were awarded in the UAE. This is 59 per cent less than the $17bn-worth of construction and infrastructure contracts awarded for the same period in 2010. The drop in work opportunities has resulted in a fall of construction materials throughout the UAE.

UAE construction and infrastructure contract awards
2011 (Q1-3)$10bn
Source: Meed Projects

The average price of reinforcing steel bars (rebar) dropped to $785-830 a tonne from $820-870 a tonne from March to October, according to data from UK-based consultancy firm Davis Langdon.

“Prices on rebar and wire rod have come down in the last quarter,” says a UAE steel industry source.

The effect of reduction in new projects on steel prices has been compounded by the increasing amount of Turkish steel products entering the GCC market.

“Turkish steel is coming in cheaper and this has forced local steel producers to drop their prices. It has caused a bit of a hiccup in the market,” says one UAE-based steel source.

The effect of cheaper steel imports has been felt as the UAE’s construction market has contracted.

“The Turkish producers are first to drop their price, then contractors’ demand from all producers that the selling price is dropped,” adds the steel industry source.

Despite the fall in rebar prices, the price of structural steel in the UAE remained flat at $900 to $1,100 for the third quarter.

Those in the UAE’s steel sector point to the slowdown in Abu Dhabi’s projects sector as a significant factor in the drop of demand for construction materials in the UAE.

“The Abu Dhabi market has not fulfilled its promise. There was a lot of optimism about Abu Dhabi at the start of the year, but this has gone now,” says one local steel supplier.

As the UAE capital continues to downsize planned projects in an attempt to reduce spending, the prices of materials are not expected to rebound in the near future.

“It isn’t just a temporary drop. It looks like continuing for next 12 months,” says the steel supplier.

The drop in activity in the UAE’s construction sector has not yet had much impact on the country’s cement industry, with prices remaining flat at $3-4 for a 50kg bag and the price of ready-mix concrete falling marginally to $55-68 in October from $60-75 in March.

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