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Rays of recovery - Raw materials prices begin to revive in UAE

MEED reported that rising steel, aluminium and copper prices are set to drive up the cost of developing real estate this year. The cost of building real estate developments in the UAE is expected to rise in the H2 of this year following an increase in raw materials prices in May, the first such increase since the middle of 2008. The rise in the cost of steel is the most significant change in materials prices. Along with cement and aggregate, it is one of the 3 most widely used raw materials in construction projects.

The price of steel reinforcement bars in the UAE climbed to AED 1,950 a tonne in May for the first time since November 2008. UAE rebar prices peaked at AED 5,750 a tonne in July 2008. A source at one Asian contractor working across the Gulf said that "Straight-bar prices are just under AED 2,000 at about AED 1,950 but cut and bent rebar is typically worth AED 150 to AED 200 more and is now trading at about AED 2,150 a tonne. It is the first time this year prices have gone above AED 2,000 tonnes." Aluminium and copper prices are also rising. Both materials are used widely by contractors. Builders use aluminium to clad buildings and copper for electrical wiring. Since March, aluminium prices have risen from AED 1,320 a tonne to AED 1,480 a tonne. Prices peaked at AED 3,042 a tonne in July of 2008.

Copper prices have climbed steadily to AED 4,540 a tonne from AED 3,290 a tonne in February. Prices peaked at AED 8,660 in April 2008. In July of 2008, they were AED 8,350, before falling sharply to AED 3,000 at the start of 2009. Contractors do not know why material prices are rising in the UAE when the construction industry has yet to recover from the collapse of the real estate sector in the H2 of 2008. One Dubai based contractor said that "It could be because people are trying to finish work before the summer period. It might be because producers have cut back on capacity and it might be because the oil price has had an effect on the cost of shipping." Although rising raw materials prices will drive up contractors' costs, most are likely to absorb the increases themselves rather than pass them on to clients as they are desperate to keep their existing contracts.

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