A severe drop in aluminium prices last year left some firms with surplus stock.
The drop in building material prices and cancelled projects has left cladding specialists with left-over stock and financial strain, Middle East firms have said.
Many firms bought their materials when prices were at their peak and, now they have dropped, cladding companies have been forced to lower their rates.
“Aluminium is subject to the London Metal Exchange rate (LME),” Rigidal Industries managing director Phil Ellerby told Construction Week. “In around August last year, the LME peaked around US $2750 (AED10,100) per tonne and by the time we got to the economic crash, the western world was far more severely affected by the crisis than the Middle East was, so the LME dropped to around $1350 per tonne.”
“This caused all sorts of other problems; if you were awarded a job in 2007 when the LME was $2750 per tonne, and it cancelled when the rate was $1350, you can use the metal somewhere else but not at the rate you bought it at,” he added.
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The financial crisis has also lead contractors to turn to their suppliers to renegotiate their contracts and according to some companies, they have no choice but to agree.
“With regards to renegotiation of projects, yes we are experiencing this considerably more at the present time as developers look at costs savings on every aspect of the construction procedure, but only on projects currently under tender, not signed projects,” said Multiforms commercial manager Mark Newberry. “This is a trend I believe being is felt by all façade companies at present.”
According to Ellerby, suppliers and manufactures are left in a no-win situation when it comes to renegotiating contracts.
“You can take the moral high ground and say no but you will then have metal in your stock, that is valued at maybe 40% higher than the current available market rate, and you have know where to put it,” he said.
“Or you can say yes I will give you the discount and I am not going to make anything out of it – in fact I am going to lose 10% just for supplying you with this job.”
The fall in glass prices has also had an effect on the cladding industry.
“We buy glass as raw material and those prices are certainly much cheaper than they were a year ago,” said Emirates Glass technical consultant Arthur Millwood.
But it’s not all bad. Many companies are now saying that the market is beginning to improve.
“Its not a question of reducing prices, the key question at the end of the day is; are we able to maintain an adequate and acceptable margin? And the answer is, by and large, yes we are surviving,” said Millwood.
Ellerby agreed and added: The bulk of our project cancellations were around the middle of October 2008. We have still one or two that have been suspended but we are not really seeing the project cancellations that we did in the beginning stages of the economic pressures.”
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