The importance of the construction chemical market
Rahul Khare sheds some light on the construction chemicals market
The GCC construction industry witnessed unprecedented growth starting in 2003 and fuelled by key a large infrastructure gap, a clear focus on economic diversification to non-oil sectors and a reserve of petro-dollars (accrued from 2007 oil prices).
In 2008, the total value of projects in the GCC was close to US $1.3 trillion. Tough climatic conditions, project scale and intricate designs posed engineering challenges, while investors demanded quicker project cycle times to realise the much needed cash.
Construction chemicals played a seminal role in overcoming these challenges and contributed in a big way to the growth of the construction industry in the GCC. The construction chemicals market was worth US $770 million in 2008.
This market has grown at an average annual rate of around 20% between 2004 and 2008. Concrete admixtures form the largest single product category and accounted for over one-third of the market in 2008. Flooring systems accounted for close to one-sixth of the market, making it the second largest product segment.
Liquid waterproofing systems constituted 12.6% in 2008. This is part of much bigger water proofing application segments, which are dominated by sheet membranes, mainly because of significantly lower prices.
Concrete repair products accounted for 8.5% of the total market. This is noticeable, particularly because the GCC construction market is a relatively new one and the majority of demand is from new construction repairs.
Construction chemical suppliers generally work in close association with the ready-mix concrete companies and other subcontractors. This is because the specific formulation for a particular application has to be designed based on requirements for maximum efficiency.
For example, the right admixture can significantly reduce the shuttering time and improve the finish, which can shorten the project cycle and avoid rework expenses. Considering the value that construction chemicals bring to a construction project, it is evident that construction chemical companies have emerged as strategic partners in project engineering and execution.
Abu Dhabi has emerged as a new centre for construction growth in the UAE. Also, some of the big projects like Dubai Metro Green line and Reef Island in Manama are likely to be finished in 2010.
Labour and construction material costs are significantly lower (close to 2006 levels) and this creates a case for investment in construction projects targeting real demand. While a recovery is expected by mid 2010, the new market is very unlikely to be what it was during the great boom of 2003-2008.
With higher price sensitivity, excess capacity and tighter budgetary control on projects, construction contractors could be very demanding customers. This will mandate that construction chemical suppliers will have to revisit and reinforce their value proposition by innovation and value engineering.
Working closely with other stake holders, such as ready-mix concrete suppliers and construction contractors to understand their pain points and creating an innovative value-engineered offering, is the mantra for success. Also, learning from the past the construction chemical suppliers need to manage their customer pool as a portfolio in order to diversify business risk and reduce volatility in income lines.
In the short run, the theme for managing should be to watch cash flows, allocate resources to innovation (a slowdown in market reduces the opportunity cost for an alternative investment) and prepare for the steady growth post market recovery.
About Rahul Khare
Rahul Khare is a senior consulting analyst with Frost & Sullivan’s material practice for the South Asia & Middle East region. Rahul is responsible for tracking the paints, polymers, packaging and construction chemicals industry for the Chemicals & Materials practice. He has an MBA in Strategy & Marketing, and an Engineering degree in Chemicals. His past work experience includes working in capacity of assistant product manager for various engineering projects.