Property developers and construction companies had been making progress to adjust to the higher building material costs after COVID-19 hit global supply chains. Now, they are facing another cost crisis. Image Credit: Supplied

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.”

  1. Steel prices are up 15-20% and now at $720/ton; copper is up 20-25% to $9,200/ton; and aluminum is also 20-25% higher to $3,400/ton, according to Hill International.

Developers respond

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.”

Commodity prices including steel were facing increased pressure due to production limitations from COVID-19 and the supply chain situation. Russia-Ukraine will restrict steel supplies to or from those markets, and so one could even expect excess global supply if the conflict prolongs. For now, I expect steel to rise by at least 10% in the next six months

- Deepak Babani of Satguru Holdings, which is building a residential project at JVC

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.

COVID-19 created spike

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.”

Stock - Azizi
Some developers have managed to control the supply and price inflation by going in for fixed, lump sum supply agreements on vital building material needs. Pictured here is the Riviera project from Azizi Developments. Image Credit: Supplied

Not just about steel

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.

So far, there hasn’t been any impact on commodity prices, but high fuel (diesel) prices will be the first one to bring about a changes. It’s going to be a wait-and-watch scenario.

- VVS Janakiram, MD Hill International Cost Consultancy (India)

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. 

These lump sum deals - as part of which suppliers adhere to fixed pricing - cover all of our supply needs for current projects, with materials all having been ordered and mostly delivered. For new, soon-to-be-launched projects, however, we will have to implement contingency plans and keep margins for any risks

- Tizian Raab of Azizi Developments