Dubai: The local construction and building materials sector could have got itself some breathing space. A dollar that has been firming up quite nicely has made imports from key supplier markets such as China and southern Europe that much cheaper to source. Plus, with China’s own domestic consumption of key construction industry staples, prospects of a firming up in material costs in the medium term appear remote, which will also work in favour of the local sector.
This is of vital significance given that many high-profile project awards are scheduled in the first six months of next year, many of which would have direct bearing on Dubai’s infrastructure preparedness to host the World Expo in 2020. In this context, if construction material prices remain stable or even take a dip, it would mean contractors here need not be concerned unduly about bringing in inflation through imported goods.
“As things stand today, there is no pressure on local suppliers on any key commodity and that should hold true for the next few months,” said Rizwan Sajan, Chairman of Danube. “Suppliers are keeping optimum stocks, and in our case we maintain a 75-90 day inventory. At the same time we retain flexibility to raise stock levels of any particular material depending on demand.” (Sajan contends that there is a flip side to the dollar pricing benefits as these gains will have to be passed on to buyers as well.)
Meanwhile, with China’s own growth stalling, its suppliers are caught with surplus stocks and it could be some time before these are whittled down through orders from outside. According to industry sources, steel products from China have softened in recent weeks, though wood materials have seen no change and, in some cases, did increase due to raw material shortage.
As for cement, it is reckoned there is still ample underutilised production capacity within the region itself and which can be cranked up if there is a sudden demand spurt brought on by a slew of new projects.
“Planning is always vital, particularly where imported materials are required,” said Christopher Seymour, Partner and head of property — UAE at the construction consultancy EC Harris. “In terms of availability, there has not been a dramatic change in lead times over the last few months, with locally sourced commodities still readily available and stock levels remaining generally in balance.
“We, however, expect demand to accelerate in 2015 which could see shortages emerging in some sectors.”
Even here, there are ways that local contractors and their clients could try and lessen the impact. “With large-scale projects breaking ground in 2015-16, there will be continuous pressure of demand of building materials and steel,” said Sameer Lakhani, Managing Director at Global Capital Partners. “Suppliers will favour larger tickets over mid-sized developers ... leaving the latter exposed to price shocks. Precautions that need to be taken are in the form of price hedges and quantity booking.”
Even then, between now and the time the new projects get mobilised in the UAE, the stronger dollar dynamic has its uses. “Combined with the Eurozone’s slack it will help dampen price increases that had already started to affect construction costs as a result of the building boom in the country,” Lakhani said. “Primary beneficiaries at present appear to be local contractors ... but part of the price benefits will pass on to developers as well.”
