20-25 % increase in price of building materials hits construction industry again

Prices of these materials climbed by 20 to 30 per cent during August, due to a combination of local and international factors, including higher demand from Europe and higher freight charges.

The increase comes on the heels of another steep climb experienced early this year when prices rose by 10 to 30 per cent. Effectively, the price increase works out to 40 to 45 per cent since January 2006.

According to Mr. Rizwan Sajan, Chairman of Dubai-based Danube Building Materials FZCO, the price of red meranti rose from $550 to $700 per tonne and that of MDF from $215 to $270 per cubic metre in recent months.

Whitewood, another key building material, jumped 20 per cent, to touch AED 1100 per cubic metre, while film-faced plywood rose from AED 90 to AED 125 per piece. Despite the high price, there is an acute shortage of whitewood in the market, added Mr Sajan.

The major suppliers of whitewood, including Romania, Austria, Russia and Chile, have found it more lucrative to divert their supply to the European market which is experiencing a boom, triggering short supply and higher prices in other markets, including the Gulf.

"These continuing price spirals have huge financial implications on the local construction industry, with contractors bearing the brunt as sudden dramatic increases affect their operations," said Mr. Sajan. "Ultimately, it is the end-user who will be affected by these ongoing price hikes."

The earlier hike had been triggered by higher freight charges due to local fuel hike, restrictions on log cutting by countries like Malaysia, Indonesia and Burma, appreciation in the Euro and increased local demand.

"The current scenario and the rising local demand indicate there is going to be another big spurt in prices of building materials before the end of 2006," cautioned Mr. Sajan.

Mr. Sajan, whose company is a major supplier of building materials to the construction industry in the Gulf region, says the current situation calls for a cautious approach by contractors while tendering for contracts and incorporation of special clauses for protecting themselves against such price increases.