Cement prices up by 7 per cent

With this increase it is expected that the price per tonne (bagged) will be Dh310-320 and approximately Dh285 unbagged.

This recent price hike is attributed to the recent increase in fuel prices as they have directly impacted the process of production and transportation costs, thus having a multiplied effects and a significant decrease in profit margins.

Earlier, it was predicted that prices would increase as a result of the hike in fuel prices, but the expectation was that the increase would be no more than 5 per cent; this estimate was reached by applying the proportions of the fuel price increase to cement prices. This did not take into consideration the multiplied effect the fuel price increase had on production and transportation.

Earlier this month, the UAE Contractors Association sent out a warning that it will take quick and effective action against cement companies that increase their prices.

Last year, when supply of cement was significantly shorter than demand, prices skyrocketed and the government was forced to intervene and set a price ceiling.

A report by the Dubai Chamber of Commerce and Industry last year about the price fluctuations of cement revealed several key factors that contribute to the price of cement. At the time of the report there were 13 cement plants in the UAE with a production capacity of 10 million tonnes despite actual production being only 8 million tonnes, with total demand being greater than the production capacity, requiring the importing of cement.

According to the report, any price fluctuation in the international markets will greatly influence prices of cement as 80 per cent of materials used in construction projects in Dubai are imported. With the recent skyrocketing price of oil, shipping and transport prices have increased significantly, in turn causing the price of the commodity to go up. In one-year the value of imports increased approximately 78 per cent.

Concrete represents about 15 per cent of any construction project and is composed of about 25 per cent cement. Consequently, the cement price increase will result in the increase of total building costs. Cement cost account for about 4–5 per cent of the total building cost.

According to the report, prices of cement raw materials and production inputs have increased, as the price of heavy fuel has increased about 43 per cent, diesel with 104 per cent. Also sea shipping costs hiked with about 150 per cent and spare parts and other materials with 60 per cent.

The report also attributes part of the price hike to the implementation of unified customs tariff between GCC countries, which led to an increase of tariff from 4 per cent to 5 per cent. Some traders exploited the hike and raised the cement prices.

Another contributor to the price hike in cement is speculative trading. The DCCI report reveals that the speculative attitude of cement producers, and traders due to the fear that market situation will endure (demand being greater than supply) adds to the cement price hike.