Rebate cuts hike costs of Chinese build materials

Prices of Chinese building materials have witnessed a sharp increase due to tax changes introduced by the Chinese government, coupled with rising shipping costs.

Rebates have been cut or scrapped on nearly 3
Rebates have been cut or scrapped on nearly 3

Prices of Chinese building materials have witnessed a sharp increase due to tax changes introduced by the Chinese government, coupled with rising shipping costs.

China scrapped or cut tax rebates from 1 July, on nearly 3,000 export lines, including materials such as metals, timber and cement, in order to help reduce its trade surplus. "The tax rebates in China have been lifted. They want to limit exports because the economy is overheating and this is a way for them to control the economic growth in the country," said Richard Feraud, managing director, Quadra Trading.

China supplies an estimated one third of materials, such as plywood and steel, to the UAE construction market.

"On our part we currently import 550 containers every month from our major partners in China, and price changes in the market coupled with soaring freight charges in turn affect the prices of the products we offer to our clients, particularly developers and contractors," said Rizwan Sajan, chairman, Danube Building Materials.

"We anticipate that the real estate and construction industry will feel a significant impact of the reduced rebates and the rising freight costs in the coming months, considering that the country's bulk of construction and building materials are imported from China," he added.

According to Feraud, the move has contributed to escalating prices in the cement industry as exporters from other markets raise their prices to match China's.

"You have other places where you can find cement and clinker. [But] the exporters from these countries are adjusting their prices to the equivalent price level of Chinese exports. Nobody is going to decrease their prices to try to compete. As exporters you are trying to maximise your revenue."

The cost hikes have been compounded by a recent increase in freight rates.

"Freight rates from China have more than doubled in the last six months, albeit from a low base," said Robert Uggla, managing director, Maersk Kanoo UAE.

"We have seen an increase in freight rates on the entire Far East to Middle East westbound trade. Rates from China, where the majority of the volumes originate, have seen a marginally higher increase over the rest of Asia."

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