Sector Monitor Series

Dubai Construction Sector

Dr. Belaid Rettab Bader Aldeen Ali Bakheet

Data Management and Research Department 2005

Published by Dubai Chamber Data Management & Business Research Tel. 04 2028410 Fax: 04 2028478

www.dubaichamber.ae

ISBN 9948 430 01 - 8


5.7% 4002 5% 0002 4002 . 7.6056 5002.

5002 839,5 . 1 91 67% 5002. : 54% 33%. 4.37% 7.02% 9.5%. 0002 4002. .

0002 4002 3.42% 1.12%. . .

 4.8% 3002 4002 5% .

4002 7.0 1.1 3002 4.2 2.0 .

4002 2 5.2% ) 05 ( 3002 8.1 .

. .

. . .

Executive Summary The construction sector in Dubai contributed 7.5 percent to Dubais non-oil GDP in 2004, and has grown with an annual average growth rate of 5 percent during the period 2000-2004, reflecting the construction boom being witnessed in the Emirate. The construction sector GDP is expected to reach 6,506.7 AED million in 2005. According to the DCCI membership database, the number of active construction companies is amounted to 5,938 in the first quarter of 2005. From the characteristics of the sector it is clear that the small size company "which employed 1-19 workers" is dominant in the sector, it represents 76 percent from the total number in the second quarter of 2005. Results of the study draw the following general observations: The building contracting activity represents 45 percent of all activities practiced in the sector followed by building completion companies with 33 percent. Large establishments are the major employer in the construction sector; it employed 73.4 percent of the total workers of the construction followed by the medium ones with 20.7 percent and 5.9 percent by the small ones. The overall partial productivity of labor in Dubais construction sector has decreased during the period 2000-2004. However, an increase in the number of labor was witnessed during the same period. Moving on to the instability of the construction material price, the study mentioned that steel in the world market have an excess supply during 2000-2004, World production during 2000 2004 recorded an increase of 24.3 percent, while the consumption recorded an increase of 21.1 percent. However, the Middle East witnessed an excess demand that would be covered through imports. The steel price continued increasing during the period 2000 2004 for all steel products in both international and local markets. Aluminum global consumption is higher than the global supply, the consumption increased by 8.4 percent during the period 2003 2004, while the production increased only by 5 percent in the same period. 3

Dubai Aluminum production in 2004 amounted to 0.7 million metric ton, while the value of imports of Aluminum and product thereof reached 1.1 billion AED in 2003, and the re-exports stood at 0.2 billion AED. World cement production approximated at 2 billion mt in 2004, representing an increase of 2.5 percent (or 50 million mt) on the previous year, while the consumption is approximated at 1.8 billion mt in the same year, which gives an over supply. In the Middle East, the price of cement continued to rise during the same period, due to the excess demand. Many settlements were done to reduce the local market price by removing the customs to encourage traders and importers to reduce the price. The cement industry expects the prices to drop down further if recent industry expansions will persist. Concerning the aluminum industry, the study suggests moving to economy of scale instead of smaller plants scattered on the Emirates. It also suggests attracting new modern technologies to develop the new and existing smelters and to diversify into innovative alternatives such as refined aluminum based finished or semi finished products. In addition, the study suggests enhancing the participation and risk sharing with the private sector.

Table of Contents Executive Summary (Arabic) ............................................................................................. 1 Executive Summary (English) ........................................................................................... 3 Table of Contents ................................................................................................................ 5 1. Introduction ..................................................................................................................... 6 2. Objective .......................................................................................................................... 7 3. Methodology .................................................................................................................... 8 3.1 Data Used ................................................................................................................... 8 3.2 Methodology .............................................................................................................. 8 4. Characteristics of the Construction Sector in Dubai 2000 - 2004 ............................... 9 4.1 Dubai Construction Sector GDP .............................................................................. 9 4.2 Gross Fixed Capital Formation ................................................................................ 9 4.3 Establishments ........................................................................................................... 10 4.4 Employment ............................................................................................................... 12 5. Fluctuations of the Main Construction Materials 2000 - 2004 ................................... 14 5.1 Steel ............................................................................................................................ 14 5.2 Aluminum ................................................................................................................. 19 5.3 Cement ........................................................................................................................ 24 6. Evaluation and Recommendations ................................................................................ 27

1. Introduction The construction sector in Dubai is considered as one of the key sources of employment, income and growth for Dubai. There is no doubt that Dubai 's emerging role as the region's trade and service hub has in part been due to the development of world class infrastructure. For example, the Jebel Ali port facilities, the airport and the creation of tailored business parks, such as the Dubai Media City. However, over the last twenty-four months the construction sector has moved from providing the necessary foundations for economic growth to being its main source. Government infrastructure projects, such as the new airport terminal and the development of Dubai International Financial Centre, have been joined by large scale private real estate projects, such as the Emaar Marina Complex of 190 new residential towers and plans to build the world's tallest tower, Burj Dubai. Last year saw the unveiling of a tourist and residential project of Dubailand, which alone has an estimated cost of AED 18bn (USD 4.9bn). Significantly, the construction boom in UAE in general and in Dubai particularly continued, and a huge construction work is in process. A long list of construction projects is planned for the coming 10 years to be executed. The number of completed buildings in Dubai was 2,119 in 2004, from which 1,436 were villas and residential complexes, 393 multi storey commercial buildings and
290 Industrial, entertainment and service building.

During the last few years the main construction materials (Steel, Aluminum, Cement, Wood, etc) has witnessed obvious price fluctuations in local, regional and international markets, although there was an excess supply in some of these materials in different regions, but there were other reasons which caused price hike. These fluctuations have direct and indirect effects on the construction sector.

2. Objective

The objective of this paper is to monitor the dynamics of the construction Sector in Dubai as a whole, during the period 2000 2004, and assess the structure and the characteristics of the sector. Special emphasis will be on price fluctuations of the major construction materials such as steel, cement, aluminum, glass, wood, aggregate, bricks and ready mix and their impact on the sector. The report aims at answering the following questions: 1. What are the main characteristics of the construction sector in Dubai? 2. What were recent fluctuations of major construction materials? 3. To which extent do main construction materials fluctuations affect the sector? 4. What are the perspectives for the construction sector in Dubai?

3. Data and Methodology 3.1 Data Used This sector monitor uses available local, regional and international statistics. In addition, to price quoted from traders in Dubai by phone to add value to existing international data and check for its validity as far as Dubai is concerned. 3.2 Methodology Different methods are used to analyze and forecast the total Non-Oil GDP for Dubai in 2004, and the GDP for the construction sector in Dubai for the same year 2004, and to find the relations between the different variables used in the study. Below are the models used:Regression analysis: used to test the relationship of variables been considered in the study. The following models are fitted to the data: i. ii. iii. Linear Regression Model Exponential Regression model Correlation Test

Section 4 analyzes the major characteristics of the construction sector in Dubai, and section 5 looks into the fluctuations of the major construction material and its effect on the sector. Section 6 goes into the perspective of the construction sector. Section 7 closes with conclusions and recommendations.

4. Characteristics of Dubai Construction Sector 4.1. Dubai Construction Sector GDP

Table 1: GDP of the Construction Sector- Dubai, at Factor Cost, 2000-2004* (AED Million) 2000 Total Dubai (non-oil) GDP Dubai Construction Sector
Source: Ministry of Planning * DCCI Preliminary Estimation

2001 60,960 5,218

2002 65,821 5,378

2003 76,458 5,724

2004* 83,492 6233

55,970 5,066

From the above table1, it is clear that Dubai non-oil GDP increased by 49 percent during the period 2000 2004. On the other hand, Dubai construction sector absolute contribution to the GDP is on upswing, achieving an increase of 23 percent during the period 2000 2004, and an annual growth rate of 5 percent. The sector's GDP is expected to grow by 4.4 percent in 2005 to reach AED 6,506 million. However, the significance of the sectors contribution to the emirate GDP witnessed continual decline as other sectors gained more weight in economic activities. In 2004, the sector contributed 7.5 percent to Dubais non-oil GDP, down from 9.1 percent in the year 2000. 4.2. Gross Fixed Capital Formation Table 2: Capital Formation of the Construction Sector, Dubai, 2000-*2004 (AED Mln)
2000 Total Dubai Fixed Capital formation Fixed Capital formation in Construction Sector "Dubai"
Source: Ministry of Planning * DCCI Preliminary Estimation

2001 19486 761

2002 19970 780

2003 20860 980

2004* 24658 1085

18716 740

The Gross Fixed Capital Formulation of the construction sector increased by 47 percent during the period 2000 2004, with annual growth rate of 10 percent, which reflect the boom of the sector. It is expected to grow by 8.5 percent in 2005.

4.3 Establishments For the purpose of the study, establishments were classified into three different size classes according to the number of employees. Small establishments are defined as those employing 1-19 workers; medium employ 20-249 workers; and the large establishments, which employ 250 workers and over. According to DCCI membership database, there is an estimate of 5,938 active construction related companies in Dubai of different sizes and specializations in second quarter, 2005. This number increased by 32 percent from the year 2004, which recorded 4,498 companies. Table 3: Size of the Construction Companies in Dubai by Employment Size 2003 2005* 1 - 19
Employees

20 249
Employees

250 over
Employees

Total 3,511
100%

Year 2003 percent from total Year 2004 percent from total Year 2005* percent from total
Source: DCCI Membership Database * Second Quarter of 2005

2692
76.7%

705
20%

114
3.3%

3279
72.9%

1042
23.2%

177
3.9%

4,498
100%

4507
75.9%

1223
20.6%

208
3.5%

5938
100%

The small size company "1 19" is dominant in the construction sector, it approximately represent 76% percent of the total employees in the second quarter of year 2005, while it was 73 percent in 2004. The main construction activities are; Site preparations (which include, wrecking & demolition works, land draining works, civil exploiting works etc), contracting of civil engineering works (which includes, contracting of civil engineering works, building contracting, steel construction contracting etc), building installation (which includes, air conditioning system contracting, lifts & escalators contracting, .etc) and building completion (which includes, concrete works, painting contracting, insulation contracting,.etc. Contracting of civil engineering works represent 45 percent of all construction companies working in the sector followed by the building completion with 33 percent. 10

Figure 4: Main construction Activities in Dubai, 2004

2% 20% 33%

45%

Building Completion Contracting of civil eng. Works

Building Installation site preparation

Source: DCCI Membership Database, 2005

The total number of completed building in Dubai increased by 11 percent during the period 2000 2004 from 1,917 building in 2000 to 2,119 in the year 2004. Table 4: Completed Buildings in Dubai, 2000-2004 Year 2000 2001 2002 2003 2004 Villas & Residential Complexes 1,098 1,672 1,558 1,112 1,436 Multi-storey Commercial Buildings 330 355 412 423 393 Industrial, Recreational, & Services Buildings 489 418 289 348 290 Total 1,917 2,445 2,259 1,883 2,119

Source: Dubai Municipality

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4.4 Employment Construction sector is considered one of the major employers in Dubai, the number of workers in the sector in 2003 was amounted to 111,700 employees, which represented 15 percent of the total workers of Dubai in the same year. The number of workers in the construction sector increased by 33 percent during the period 2000 2003, and expected to reach 123 thousand workers in 2005. According to the three size classes, Figure 5 below shows the number of employees under each class. Large establishments are the major employer in the construction sector; it employed 73.4 percent of the total workers of the construction followed by the medium ones with 20.7 percent
and 5.9 percent by the small ones. The total number of workers in the construction sector reached 304,983 employees in the second quarter of 2005.

Figure 6: Number of Employees by Size of the Company in Construction Sector in Dubai, 2005*
250000

Employees Number

200000 150000 100000 50000 0 1-19

73.4 %

5.9 %

20.7 %
20 - 249 250 - over

Classes

Source: DCCI Membership Database * Second quarter of 2005

The largest employer in Dubais construction sector is the contracting of civil engineering works activity. This includes the contracting of buildings; pre-fabricated concrete and wooden houses; steel construction; roads, bridges, tunnels and dams; sewage, drainage and pipelines; electric; marine and ports; and general maintenance. The construction market benefits from the persistent 12

population and tourism growth in Dubai, and hence much of the construction activity in recent years has focused around the residential market. Figure 5.sketches Dubais construction sector employment and employment productivity. Figure 7: Employment in Dubai Construction Sector, 2000 -2005*
Worker & Worker productivity in Construction Sector, 2000 - 2005 150000 100000 50000 0

2000

2001
Workers

2002

2003

*2004

2005*

Workers productivity

Source: Ministry of Planning * DCCI Preliminary Estimation

The overall partial productivity of labor in Dubais construction sector has decreased during the period 2000-2004 (Figure 7). Although an increase in the number of labor was witnessed during the same period, labor productivity expected to continue on the same declining trend in 2005.

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5. Fluctuations of the main Construction Materials 2000 2004 During the last few years most of the construction materials has witnessed great fluctuations in its production, consumption and mostly its price due to different reasons. We will go through each construction material and look into it from different angels such as production, consumption and price in local, regional, and international markets. 5.1 Steel The importance of steel in the development of any modern economy cannot be over-emphasized. Steel is a core industry input and its demand is strongly linked to the overall level of economic activity in the country. This section intends to find some answers regarding the size of the production & consumption of steel in the UAE "Dubai", Middle East and the world market during the period 2000 - 2004. 5.1.1 World Market Table 5: World Steel Production and Consumption, 2000 2004 (Million tons) 2000 Production Consumption Excess supply
Source: MEPS

2001 845 766 79

2002 886 810 76

2003 963 872 80

2004 1050 918 132

845 758 87

World production of steel has increased by 9 percent in 2004, from 963 million ton in 2003 to 1050 million ton in 2004, while world consumption of steel was increased by 5.3 percent in the same period, from 872 million ton in 2003 to 918 million ton in 2004. World production record during 2000 2004 an increase of 24.3 percent, while the consumption record an increase of 21.1percent.

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During the period 2000 2004 and from demand supply point of view there an obvious excess of supply over the specified period, which should make the price of steel stable. However, the situation is contrary to that. 5.1.2 Middle East Market Table 6: Middle East Steel Production and Consumption, 2000 2004 (Million tons) 2000 Production Consumption Excess demand
Source: MEPS

2001 11.7 22.8 11.1

2002 12.4 23.5 11.1

2003 13.4 24.4 11

2004 14.2 25.3 11.1

10.8 19.9 9.1

On the other hand, Middle East production of steel has increased by 6 percent in 2004 from 13.4 million ton in 2003 to 14.2 million ton in 2004, while Middle East consumption of steel was increased by 3.7 percent in 2004 namely from 24.4 million ton in 2003 to 25.3 million ton in 2004. General increase of production of steel in the Middle East recorded during 2000 2004 was 31.5 percent, while steel consumption recorded an increase of 27.1 percent. During the period 2000 2004 and from demand supply point of view, it is clear that Middle East has excess demand, which makes the shortage in the region, and made it depend on the world market through imports. The entire Middle East region is completely dependant on the steel imports. The domestic production is completely swallowed by the high domestic demand. Steel produced from Saudi Arabia and Qatar get exhausted in Middle East, purely due to the high demand from construction sector. 5.1.3 Steel at Dubai "UAE" Market The local market demand for building material and its products is growing rapidly as both public and private sectors are floating tenders for the construction of diversified commercial, residential and institutional buildings. Major public sector projects in Dubai include airport developments, road building and expansion of utilities. Exceptional sectoral development is visible in building 15

new shopping malls, hotels, apartment blocks and office towers. UAE in general and Dubai specifically witnessed obvious fluctuations in the price of steel during the period 2000 2004. There are many projects running in Dubai and scheduled up to the next 10 years, for example, Burj Dubai, Nakheel Islands, Dubai Land, etc The total value of the projects planned in the UAE and those to start in the year 2005 and continue for the coming 10 years amounted to around $61 billion. Table 7 below shows part of planned projects in Dubai with a value of more than $500 million. Table 7: Planned Construction Projects in Dubai, 2005 Project Name
Emirates Pearl Al-Hashemi Group/ Al-Salem Group Dubai Mountain City Dubai International Chess City Gulf Finance House - Dubai Legends Al-Hanoo Holding Company - Stars Islands DCA - Jebel Ali Airport City Falcon City of Wonders Al Sharq Group - Aqua Dubai DTPDC - Dubailand Green Works - Al Barari I&M Galadari Group - Mall of Arabia Jebel Ali Free Zone Authority - South Zone Dubai Waterfront Company - Dubai Waterfront Nakheel - Al Burj Tower IFA - Palm Island New Hotels & Resort DSC - Victory Heights Dubai Municipality - Shaikh Zayed Highway Carriageway Gulf Finance House - Dubai Legends (Basic Infrastructure)
Source: MEED Projects Database, 2005 * Estimated Value

*Value "Million"
$9,500 $3,400 $2,700 $2,500 $2,500 $2,000 $1,500 $750 $700 $650 $600 $550 $500 $500 $500 $500 $500 $300

Project Start
Q4 2005 Q4 2005 Q2 2006 Q2 2005 Q4 2005 Q1 2006 Q3 2005 Q1 2006 Q1 2005 Q4 2005 Q4 2005 Q2 2005 Q3 2005 Q1 2006 Q1 2006 Q3 2005 Q1 2006 Q2 2005

Client
Al Rayyan Investment Company Al Salam Holding Company Armada Group Gulf Finance House (GFH) Al Hanoo Holding Company Dubai Civil Aviation (DCA) Salem al-Moosa Group Al Sharq Group Dubai Tourism Projects Development Company (DTPDC) Dubai Tourism Projects Development Company (DTPDC) I & M Galadari Group Jebel Ali Free Zone (JAFZ) Private Developer Nakheel Corporation International Financial Advisors KSC (IFA) Dubai Tourism Projects Development Company (DTPDC) Dubai Municipality Gulf Finance House (GFH)

End
Q4 2009 Q4 2008 Q4 2009 Q4 2009 Q4 2008 Q4 2010 Q4 2010 Q1 2008 Q1 2011 Q4 2009 Q2 2008 Q4 2009 Q4 2009 Q4 2009 Q2 2008 Q4 2008 Q4 2009 Q4 2007

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Year Year 2001 Year 2002 Year 2003 Year 2004

Table 8: Steel Price in the International Market by Product Type 2001 2004 Average Price in US$/Ton REBARS BEAMS WIREROD HRPLATE HRCOILS CRCOILS HDGCHR STAIN304 270 326 253 302 250 334 387 1,386 278 297 481 338 371 581 267 302 474 305 345 602 314 342 555 373 423 635 439 489 721 1,417 1,715 2,516

STAIN316 1,891 1,957 2,349 3,661

Source: calculations based on data from MEPS International

Fig 8: Stainless Steel SR Type 316 World Average Price, 20012004 4000
3500 US $/Ton 3000 2500 2000 1500 1000 2001 2002 2003 2004

Source: calculations based on data from MEPS International

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According to the above-mentioned graph, it is clear that the Stainless Steel CR Type 316 prices has increased in a quadratic way, and during the period 2001 2004 increased by 94 percent that considered a huge increase to this vital product, which indicates that, steel prices are still rocketing in the world market. Dubai "UAE" market is not different from the above; the price of steel in the local market is rising due to the increase in global demand and a decline in supply of raw materials from major source markets, table 8 below shows the steel prices in Dubai. Table 9: Average Steel Price CFR Dubai during Dec 2002 March 2005 (US $/ton) Wire Re Bars Beams 2002 2003 2004 *2005 259 311 469 458 286 348 590 567 Rod 264 310 485 492 HR Plates 272 326 576 613 HR Coils 288 311 518 604 CR Coils 370 420 610 703 HD GCHR 450 488 700 807 Stain 304 1488 1643 2581 2717

Source: calculations based on data from MEsteel.com * Average from January - March

From table 9, it is clear that all steel products prices increased during the period Dec.2002 jan2005. Moreover, during the above-mentioned period, steel price has on average increased by 88.7 percent. As some experts argued that construction industry uses 41.5% of all steel produced1, then the total construction cost price will increase by 37 percent.
700 600 500 400 300 200 100 0

Figure 9: Hot Rolled Coils Average Price, 2002-2005*

US $/ton

2002

2003

2004

*2005

Source: Calculations based on data from MEsteel.com * Average from January March
1

www.Ivforum.com/costdigest

18

5.2 Aluminum 5.2.1 World Market Aluminum is a lightweight, corrosion resistant metal, high in electrical conductivity and suitable for a wide range of applications. The predominant uses of aluminum are in the construction, packaging, power, consumer products and transportation industries. Because of its broad applications, aluminum demand has generally been linked to fluctuations in national and international economic conditions. Historically, the price of aluminum have been affected by the level of production of aluminum, consumption of aluminum in end-use markets, and, to a more limited extent, speculation in the commodities market. Table 10 below shows the international aluminum market: supply demand" and the changes during 2000-2004. Table10: Global Primary Aluminum Supply & Demand 2000 2004 (Thousand Metric Tons) Production Consumption Excess Year 2000 Year 2001 Year 2002 Year 2003 Year 2004* 20,230 24,466 26,090 27,999 29,400 20,659 23,745 25,354 27,482 29,800 -429 721 736 517 -400

Source: Aluminum Intelligence, Feb 2003; MEED Reports, 26 Nov 2 Dec. 2004

It is clear from the above table that global aluminum consumption is exceeded global production in 2004, leading to a shortage in global market supply and actually to price hikes. Aluminum consumption during the period 2001 2004 increased by 25.5 percent, while the production increased only by 20.2 percent in the same period. According to the Consensus Forecast, Figure 10 below shows the international Aluminum supply and demand forecast up to the year 2006, which clearly shows supply deficit. 19

The global aluminum market affects the Middle East market, the deficit in global market cause the price to increase. The reason for this increase is the failure of aluminum capacity increase to keep the pace. World demand is expected to grow through the years until 2006. Figure 10: Aluminum Global Supply and Demand Forecasts

Source: Consensus Forecast

According to international forecasts, the international aluminum market will continue to face a supply shortage in 2006 resulting from high demand for aluminum, and hence price is expected to continue on the upswing. Alumina is the primary raw material for aluminum production. The demand for alumina is driven by the demand for aluminum, with approximately two tons of alumina required to produce one ton of primary aluminum. Figure 11 below shows the forecast of the increase in required amount of alumina up to 2005.

20

Figure 11: Alumina Forecasting Required Utilization Rate, 2002 - 2005

Rise in primary production will exert upward pressure on alumina market
A lu m in a r e q u i r e d U t il is a t i o n r a t e (% ) 96 95 94 93 92 91 90 89 2002 2003 R e q u i r e d u t i li s a t io n r a t e 2004 A v e . U t il is a t i o n R a t e 1 9 9 6 - 2 0 0 1 2005

Aluminum Association 2002

Alumina

Strong global demand for aluminum has left alumina in short supply, a condition which should persist for at least the next two or three years, and that will keep prices rising. Prices of alumina may even enjoy slight growth this year due to the short supply, and this also lead aluminum price to hikes. Moreover, figure 11 shows that, the required utilization production capacity should increase in the year 2005 to meet the higher consumption from the existing average utilization achieved in the year 2001. 5.2.2 Middle East Market The demand for most metals in the region is growing rapidly, and is mostly met through imports. Regional prices are hence affected by the international market fluctuations, which are driven not only by increased use within individual nations but also because many nations of South-East Asia are major consumers of the world market. There are four major aluminum factories in the Middle East spread among the UAE, Bahrain, Iran, and Turkey. Middle East aluminum production remained low, although increasing from 1,180 thousand metric tons in the year 2000 to 1,315 thousand metric tons in the year 2004, with a total increase of 11.4% in the said period. Therefore, being a small player in the international aluminum market, the Middle East market is affected by the former, in which supply shortages are exerting upward pressures on prices. The reason for this increase is the failure of aluminum capacity to increase and keep pace with the 21

increasing demand, leading to limited production, coupled with an increasing level of consumption.
Figure 12: Middle East Aluminum Production, 2000 - 2004*
1350
Thousand Metric Tons 1315 1280 1250 1220 1180

1300 1250 1200 1150 1100 2000 2001

2002

2003

2004

Source: minerals.usgs.gov mineral industries of the Middle East * estimated

5.2.3 Dubai "UAE" Market Aluminum represents a major extraction and processing industry for Dubai. In 2003, Dubai aluminum imports amounted to AED 1 billion; exports stood at AED 2.4 billion, while reexports were only AED 190 million. Aluminum production in Dubai increased by 22% in 2004 to reach 683 thousand metric tons, up from 560 thousand metric tons in 2003, and constituting as much as 52% of the total Middle East production. This great development in the aluminum production coincided with the establishment of some industries of forward correlation with the aluminum industry such as aluminum rolling and chips, in addition to several industries related to the construction sector. Table 11 below shows Dubai aluminum foreign trade during the period 2000 2003. Table11: Dubai Aluminum Foreign Trade, 2000 2003 (Value in Thousand AED) Years 2000 2001 2002 2003 IMPORT 535,675 728,350 787,544 1,067,774 RE-EXPORT 84,190 65,742 92,457 190,717 22 EXPORT 3,305,489 2,963,722 2,623,354 2,376,207

Source: Dubai Ports, Customs and Free Zone Corporation

Dubai Aluminum Company (Dubal) has been a major player in the Gulf's aluminum industry and has undergone significant expansion since its inception in 1979. The production of aluminum in Dubai is planned to increase nearly one million ton a year. Moving on to prices, it is noticed that while aluminum prices declined by 10% during the period 2000 2003, they witnessed a 45% increase since then up to January 2005 (Table12). Table 12: Global Aluminum Price, 2001 2005 2001 Aluminum price 1,536
Source: minerals.usgs.gov, 2005

2002 1,456

2003 1,431

2004 1,662

Jan. 2005 2,079

The latest considerable increase in international aluminum prices bears great consequences on the construction sector in Dubai, as it used in different stages of construction, which is witnessing a continuous boom in the Emirate. UAE in general and Dubai specifically can benefit from this situation. Aluminum represents a major extraction and processing industry for the UAE. The availability of raw materials and major resources used in the production, is qualifying the country to be dominant in the aluminum industry.

23

5.3 Cement 5.3.1 World Market World cement production approximated at 2 billion mt in 2004, representing an increase of about 2.5 percent (or 50 million mt) on the previous year, and a continuation of the annual underlying expansion, which has seen year-on-year growth in almost every year. Figure 13 below shows the global cement production & consumption during the period 2000 2004.

Figure 13: World Cement Production during 2000 2004 2000

1950

(Thousand Tons)

500 0

2000

1630

1000

2001 Production

1679

2002

1708

2003

1776

*2004

Consumption

Source: U.S. Geological Survey, 2005 * Estimated

On the other hand, world cement consumption increased by 3 percent (or 200 million mt) in the year 2004 from previous year 2003, and it is been noticed that demand is growing faster than the supply that will cause a deficit in the near future "short run" and lead to price increase.

24

1830

1500

1600

1700

1720

2000

5.3.2 Middle East Market Figure 15 below shows the cement production and consumption in the Middle East during the period 2000 2004

150

Figure 14: Middle East Cement Consumption, 2000 - 2004

Million ton

100

50 2000 2001 2002 2003 *2004

Consumption

Production

Source: www.worldlocal.com ; JP Morgan; ICR, Deutsche Bank and Global Investment House Estimates * Estimated

It is clear from the above Figure 14 that, the Middle East is facing excess demand on the cement, which causes the price to hike. In 2004, cement production in the Middle East is estimated at 116 million ton, while the consumption is estimated at 123 million ton. Cement consumption rose in virtually all markets of the region, in some of them very sharply indeed. The increase was primarily due to residential construction and to the expansion of both commercial and the transportation infrastructure. 5.3.3 Dubai "UAE" Market With the continued growth of the property market in the UAE and in-line with His Highness, Sheikh Mohammed bin Rashid Al Maktoum Crown Prince of Dubai and UAE Defense Minister vision to increase trading opportunities internationally, regionally and within the UAE, Dubai Ports Authority and Jebel Ali Free Zone committed to providing facilities and docking berths for RMC Gulf and other supplies companies importing cement to developers in the UAE. 25

Cement prices had doubled in Dubai and its adjoining areas to 25 AED per bag at the end of 2004, but retreated to 17 AED per bag following a settlement reached by the UAE Contractors Association with local cement manufacturers to cut down prices. The capacity of cement production in the UAE is about 10 million ton while the consumption is more than 12.5 million ton. This high consumption is due to the construction boom in the country as a whole and Dubai particularly which has led to cement price hike. Cement price increased during the period 2002 2003 by 30 percent while it increased by 60 percent during 2003 2004. Figure 15 below shows cement price in UAE during 2002 2004.

Figure 15: Cement price in UAE, 2002 - 2004

300 250 AED/Ton 200 150 100 50 0 2002 2003 2004 *2005

Source: Emirates Industrial Bank; www.ameinfo.com * February 2005

From the above Figure 15, it is clear that cement price continued increasing during 2002 2004, but fell dawn by 15 percent in the year 2005, as many measures were taken, such as the withdrawal of 5 percent duty on cement, stop of cement exports, and increases the imports of cement by Nakheel Company and the contract association. Although the huge construction projects continued but many cement factories increase their capacity, consequently cement production increased to cover most of the market shortages in addition to the imports.

26

6. Evaluation and Recommendations Dubai has witnessed a boom of construction projects during the last few years and boasts of an infrastructure that is unequaled in the whole of the Arab world. Such projects are huge residential and commercial complexes. The huge construction and infrastructure development projects announced or under development in Dubai are both exciting and challenging such as the Expansion of Dubai International Airport, Palm Islands, China Town, etc, and other projects planned to be executed in the coming years such as Dubai light rail transport (LRT) project and Deira Palm Island. The construction sector in Dubai is expected to continue on its high growth during the coming years. It is clear from the growing projects and the planned ones that in the short and medium term the construction sector will continue growing. Despite the massive number of the existing or planned projects, it is estimated that the construction sector will continue growing and is not going to face shortage of construction material like the crisis occurred during the last few years. This is due to the expected operation of new steel and cement plants in the near future, in addition to new procedures that stipulated to facilitate cement imports. The study suggests to further improve the investment opportunities and the general business environment of the sector to allow for future growth. Therefore, imports of vital materials such as steel for the sector require continuous monitoring and improved organization and set-up. As regard cement, it is expected that the market will act accordingly to satisfy domestic demand. Aluminum industry in the UAE generally and specifically in Dubai, should benefit from the situation of the shortages in the aluminum market, since all resources are available. It has to: - Focus on economy of scale, instead of smaller plants scattered over the Emirates. This will decrease cost of production and increase competitiveness of the products. - Attract new modern technologies in developing new and existing smelters and diversifying the assortment into innovative alternatives such as refined aluminum based finish and semi- finished products. - Enhance the participation and risk sharing with the private sector. 27