Building material price increases expected in 2010

Rizwan Sajan, chairman of Danube Building Materials.

Material prices, which have been relatively stable for the last six months, are expected to rise at the start of 2010, according to Rizwan Sajan, chairman of Danube Building Materials.

Sajan identifies freight rate rises for imports from China as a key cause.

“The freight rate from China, which was previously at US $600-700, is currently at $1000 per container,” he said. “There is a big possibility of this climbing to $1500 by year end, which also means that there is an increased demand for the products.

“Prices have been more or less stable for the last six months, registering a variation of not more than plus or minus 5-10%.

“For the beginning of 2010, we are expecting some prices to go up, especially for wood as a result of the increase in the freight rates and the demand that has been created in the region, particularly within the GCC.”

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While Sajan says there is no established trend that covers all building materials, with individual products are affected by different variables.

“As far as wood is concerned, price indicators are turned upwards for the beginning of 2010 due to freight rate hike,” he said. “On the other hand, steel bar prices are dropping due to lack of demand and a correction in the prices of scrap and billets and prices of Turkish steel bars. Similarly, the price of cement has seen a similar fate, where weak demand continues to affect profitability amidst rising production costs.”

Price drops for cement and steel have helped contractors push on with projects, at a lower cost than initial estimates. Earlier this year Masdar said it will save about US $105 million (AED386 million) on the construction of a solar power plant, being built in Abu Dhabi, because of declining material costs.

"When we first asked for bids in October we could not believe the cost estimates...we told the contractors we don't want to start negotiating with you on this bid. Costs have come down by about 20%." Masdar senior project manager Olaf Goebel told Reuters at the time.

Masdar said it will save about US $105 million (AED386 million) on the construction of a solar power plant, being built in Abu Dhabi, because of declining material costs.

The same is the case for the mall at City of Arabia.

“In terms of value, when we awarded the contract for the mall, steel was US $6000 (AED22,000) a tonne,” said Alex Vacha, deputy director of projects, City of Arabia in an interview earlier this year.

“At the time of signing contracts we put in an escalation clause, now we should look into putting in a de-escalation clause. Just on the pile caps, we have saved about $100 million worth of steel,” he said.