Abu Dhabi steel prices soar 91%

Abu Dhabi: Limited domestic production and soaring international prices of building materials continued to drive the costs up substantially in Abu Dhabi last month, according to the emirate's Department of Planning and Economy (DPE).

DPE's monthly building materials index revealed a rise in the prices of construction steel and cement in July when compared to June, recording a rise of 91 and 46 per cent respectively since the beginning of the year.

"The average increase in the prices of various building materials last month varied sharply from 3 to 53 per cent, yet the fact remains that the overall prices have increased substantially during the first half of the year," said a report issued by the department.

"One of the reasons is the overwhelming demand in Abu Dhabi, where the value of development projects from 2004 to 2007 stood at Dh880 billion, with Dh200 billion additional projects expected this year alone," the report said.

The wide gap between the production and consumption of construction steel has been blamed for the market's imbalances.

In terms of production, Abu Dhabi was successful to raise its output from 383,700 tonnes in 2003 to 830,000 tonnes in 2007, and by the end of 2009 this figure is expected to exceed 1.5 million tonnes.

This projected increase is attributed to the expansion of Emirates Steel and the operation of new facilities, such as Gulf Steel Industries - which will begin production by the fourth quarter of 2008 with a capacity of 400,000 tonnes - and Union Steel which is still under construction.

"Nevertheless, the steel consumption pattern in the capital suggests the continuation of the imbalance for years to come, given that the average annual growth of consumption stood at 24.6 per cent during the past three years.

It rose from 1.69 million tonnes in 2006 to 2.11 million tonnes in 2007," the report said.

Increasing imports is a natural result of the wide gap of more than 39 per cent between consumption and production.

Steel imports grew from 806,000 tonnes in 2005 to 1.62 million tonnes in 2007, a 71.6 per cent increase.

"Only 5.7 per cent of the imports come through Abu Dhabi's ports, while the majority comes through Dubai," the report said.

The result was a 91 per cent increase in prices during the first half of 2008 from an average of Dh3,139 per tonne in January to Dh6,000 in June, with the rising costs of diesel and electricity by 40 per cent and labour by 15 per cent adding to the burdens faced by the domestic producers.

The gap between production and consumption is even more eminent in cem-ent, where the emirate lacks the essential ingredient, namely clinker, and suffers from the increasing production costs, especially furnaces' fuel which witnessed six price rises this year. Moreover, coke's prices also increased by 93 per cent from $58 in 2005 to $170 in 2008.

Abu Dhabi's cement production increased from 920,000 tonnes in 2003 to 1.1 million tonnes in 2006, while consumption in 2006 stood at 1.8 million tonnes.

Accordingly, average cement prices shot up by 30 per cent in 2007 and by about 46 per cent during the first half of 2008, from Dh442 per tonne in January to Dh645 per tonne in June. DPE projects a continuous rise in prices of building materials, especially because many contractors are tending to stockpile many of their needs to ensure their commitment to contracts' obligations.