Middle East Steel and Building Material Production to Expand to Flatten Booming Prices

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Researched by Industrial Info Resources (Sugar Land, Texas)--The United Arab Emirates' state-controlled Emirates Industrial Bank (EIB) has said that the United Arab Emirates and partner members of the Gulf Cooperation Council (GCC) need to pursue a policy of expansion in the steel and building materials industries in order to reduce soaring prices in those sectors. The bank believes that expanding will enable the Middle Eastern countries to reduce imports and meet the fast developing demand. The bank is also concerned with a growing inflation curve that is being fed by speculation, high demand and the cost of construction.

The bank's study showed that the construction boom in the GCC, founded in 1981, had pushed the per-capita consumption of steel to a record 387 kilograms in 2007, which was more than double the world average per-capita consumption of 182 kilograms. On occasion, demand in the United Arab Emirates had risen as high as 440 kilograms per capita, which made the region the largest per-capita steel consumer.

The current building boom and the drive to diversify the region's economies away from reliance on their traditional hydrocarbon resource base had stimulated the private sector and banks and other lending institutions. Therefore, there is a need for more projects and expansions of existing units to meet demand and reverse the upward price trend, the study stated.

High demand in the local and global markets for building materials, transport costs driven higher by rising fuel prices and the global construction product pressure were some of the factors behind the building price surge. However, in a region with the advantage over other areas of cheap production costs based on lower local energy prices, the prices of some building materials have exceeded those for the same products worldwide, the bank said. Speculation was one of the nonobjective factors driving prices, the bank said.

As inflation and higher oil prices maintain the pressure on global construction project resources, the GCC states have not been immune, although their income keeps barreling along on the ever-rising oil revenues. The Centre for Global Energy Studies (London) forecasts that combined earnings of the six GCC countries will rise to $562 billion in 2008 with the United Arab Emirates reaching $97 billion, up 67% year over year, and Saudi Arabia reaching $307 billion, up 75% year over year. In 2007, the GCC's income was $328 billion, and in 2003, its income was $137 billion. In 1998, with oil at $10 to $12 per barrel, the GCC's income was about $56 billion.

More pressure will come to bear on the region's economic balance with the need to add 100,000 megawatts of power over a 10-year period to support growth. This sector is looking to boost capacity and reduce production costs as the GCC moves into the global top 10 of power consumers. Regional power generation is forecast to increase at a rate of 29.7% between 2007 and 2011.The bill for 10 years of additional power growth has been estimated at $100 billion. For related information, see August 19, 2008, news article - Middle East Infrastructure Projects Boom as OPEC Oil Exports Target $1 Trillion for 2008.

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