What price a bag of cement?

As prices of commodities have risen in today's world, life has become harder for individuals and businesses.

COMMENT, Business

The introduction of price caps on basic commodities is always done with the best of intentions. As prices of these commodities have risen and risen in today's world, life has become harder and harder for individuals and businesses.

Knowing how much something is going to cost helps with budgeting and forward planning.

The introduction of a cap on cement prices by the UAE last year was one such well-intended move. As Dubai's construction boom has continued at pace, demand for this basic material has reached such levels that it was felt suppliers were artificially inflating prices.

Accusations of cartel behaviour have even been levelled at cement producers.

The introduction of a cap aimed to set a price that would give the producers a decent margin and ensure that contractors could make a profit on their projects. Rising materials costs during the lifetime of a fixed sum contract have, after all, been causing significant losses for many contractors.

Now, several months down the line, it is widely felt that the cap isn't working as well as it could and that many transcations have been taking place at prices well above the official cap. That why this week's move to raise the cap was a most welcome one.

The new price has been set at a level that more accurately reflects the actual figure that contractors have been paying for cement for the last few weeks.

Bringing the official price in line with the price that buyers are really paying could bring transparency back to transactions and reduce the gap between the official capped price and the amount that contractors are really paying for cement.

For the cap to have a chance of working, it should be reviewed on a regular basis by a body made up of buyers, sellers and government officials. This body could also monitor production levels to try to ensure that output is in line with the needs of the market.

A cap may not dampen property prices, but managed effectively, it could help contractors who are struggling to control costs and make a decent profit on contracts.

David Ingham is the Editorial Director of ITP Business Group.

RELATED LINKS: New cement price cap at US $92.5 per tonne

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