A decline of more than 11 per cent in concrete prices last month might have been good news for builders, but it put a serious dent in the profits of some of the region's biggest concrete makers. Concrete companies are struggling as demand for their product, a hot commodity during the building boom, cools along with the demand for new property.
The price of the two principle varieties of concrete, UAE Standard and the UAE sulphate resistant ready-mix, declined by 11.4 per cent and 11.3 per cent respectively last month, according to data released by the Statistics Center - Abu Dhabi. Hettish Karmani, an analyst at Global Investment House (GIH), said the drop was logical as the construction sector slowed. "Overall, close to 46 per cent of the construction projects were on hold in the UAE until the end of last year but the percentage has now risen to 49.5 per cent with aggregate project value close to US$480 billion (Dh1.76 trillion)," he said.
"The rise indicates further pressure on the construction sectors and subsequent decline in the demand for both cement and concrete products." With scant sign of recovery in sight, Mr Karmani forecasts lower margins for concrete manufacturers and says some operators in the country's northern emirates are already feeling the pinch. Peter Neuschaeffer, the Middle East director of environment, water and energy at Waagner Biro Gulf, a local subsidiary of the Austrian contractor, said oversupply was also taking its toll on cement prices.
There were slight price drops recorded in standard portland cement and sulphate resistant cement varieties last month. "Two years ago, there was a lot of demand for cement. Now it's the opposite; there's not as much demand and so it costs less." Cement prices have declined more than 11 per cent in the UAE, while the total drop in the GCC is 7 per cent, according to GIH data. The GCC countries are also expected to remove a duty of 5 per cent on steel and cement imports. It that happens, cement manufacturers in the UAE may find themselves in even deeper trouble: imported cement costs less than the locally produced varieties and would cut further into the profits if the duty is removed.
skhan@thenational.ae