Russia-Ukraine conflict: UAE developers take immediate steps to counter higher cost of steel and other imports

Dubai: Developers and contractors in the UAE are checking out alternate sourcing options for vital building material commodities such as steel after the breakout of the Russia-Ukraine conflict. Their concern is that if the options are not there, they could end up facing 20-30 per cent higher project costs in the medium-term.

That increase would be coming on top of sharp increases that steel and just about all other building materials went through sharp price gains in the last two years. That had to do with COVID-19 created supply issues, and these still exist.

“Many developers had been used to sourcing structural steel from Ukraine,” said a senior manager at a leading project management firm. “No supplies coming from there will add to the price pressures.”

Structural steel from Ukraine was in the $960-$1,000 a tonne range until the conflict broke out February 24. “With no further supplies expected short-term, buyers have to source their steel from other pricier producing countries,” said Tizian Raab, spokesperson at Azizi Developments. “Thankfully, we’re unaffected due to the fixed-price lump sum deals that we closed before the onset of the conflict. And those orders have mostly been delivered.”

Other developers may not have been so lucky, market sources say. Some of the recent orders they have booked are yet to start shipments, and that will mean higher costs and marine insurance payouts.

It may not have mattered that much if steel prices had not gone through the pandemic-created surge since the fourth quarter of 2020, which was when supplies started to emerge after the lockdown phase in most countries.

“In these 18 months, steel prices have gone from Dh1,750-Dh1,800 a tonne, while today’s price is Dh2,650,” said Raab. “It will shoot 20-30 per cent higher if the Russia-Ukraine conflict continues. Developers will still be happy if they book steel today at, say, $1,000 likely and next week the price has gone up only to $1,200. Anything more, and that’s when the cost concerns pile up.”

Across all building material categories, prices have already felt the impact of COVID-19 created upward pull. Whether its wood or sanitary-ware, anything that needs to be shipped in will again feel the pressure after the Ukraine crisis.

Industry sources say supplies from Europe will need to be closely tracked because that’s where shipping costs will likely have the maximum impact. “While we don’t have the exact figures to substantiate the precise surge in container and marine insurance rates, it can be said with great certainty that these will increase until the conflict ends,” said Raab.