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Sector Monitor Series

Dubai Construction Sector

Dr. Belaid RettabBader Aldeen Ali Bakheet

Data Management and Research Department2005



Published by Dubai Chamber – Data Management &Business Research

Tel. 04 2028410 Fax: 04 2028478

www.dubaichamber.ae

ISBN 9948 – 430 – 01 - 8



1

،وحقق ارتفاعـا فـي 2004في إجمالي الناتج المحلي لإلمارة في عام 7.5%ي بحوالي ساهم قطاع البناء والتشييد في دب

ويتوقـع أن. ،األمر الذي يعكس طفرة البناء والتشييد في دبي 2004ـ 2000خالل الفترة 5%متوسط النمو السنوي بـ

. 2005مليون درهم في عام 6506.7يبلغ إجمالي الناتج المحلي للقطاع حوالي

لقاعدة بيانات عضوية غرفة تجارة وصناعة دبي ،فإن عدد شركات البناء والتشييد العاملة في الربع األول مـن عـام طبقا

عـامال 19ـ 1يتضح من خصائص القطاع أن الشركات الصغيرة التي توظف الواحدة منهـا. شركة 5,938بلغ2005

. 2005ع الثاني من عام من إجمالي عدد الشركات في الرب 76%تهيمن على القطاع وتمثل

: خلصت نتائج الدراسة إلى المالحظات العامة التالية

%. 33من كافة األنشطة التي تمارس في القطاع يعقبها مقاوالت أعمال اإلنهاء 45%يمثل نشاط مقاوالت البناء-

العمالـة فـي من إجمـالي 73.4%تعتبر الشركات الكبيرة جهة التوظيف الرئيسية في قطاع البناء حيث يوظف-

%. 5.9ومن ثم الشركات الصغيرة20.7%القطاع يليه الشركات متوسطة الحجم التي توظف

وعلـى. 2004ـ2000انخفض إجمالي اإلنتاجية الجزئية للعمالة في قطاع البناء والتشييد بدبي خالل الفتـرة-

.الرغم من ذلك فقد شهدت أعداد العمالة ارتفاعا خالل نفس الفترة

إلى عدم استقرار أسعار مواد البناء حيث تذكر الدراسة أن الحديد والصلب قد شهد زيادة في العرض فـي األسـواق ننتقل

ين زادت 24.3%حيث سجل اإلنتاج العالمي خالل نفس الفترة زيادة قدرها 2004ـ2000العالمية خالل الفترة حـ يف

رق األوسط زيادة في الطلب على الصلب توجـب تغطيتـه ومع ذلك ،فقد شهدت منطقة الش%. 21.1نسبة االستهالك بـ

وقد واصلت أسعار الصلب في االرتفاع خالل الفترة المذكورة وذلك بالنسبة لكل منتجات الصلب في األسـواق. باالستيراد

.المحلية والعالمية



2

خـالل8.4%الستهالك بمعـدل يعتبر االستهالك العالمي لأللمنيوم أعلى من المعروض في األسواق العالمية ،وقد ارتفع ا

. فقط خالل هذه الفترة 5%في حين زاد اإلنتاج بنسبة 2004ـ2003الفترة

الواردات من األلمنيوم ومنتجاتـه قيمة طن متري وقد بلغت مليون 0.7حوالي 2004بلغ إنتاج دبي من األلمنيوم في عام

. درهم مليار 0.2وإعادة الصادرات رهم مليار د 2.4والصادرات حوالي 2003في عام درهم مليار1.1

عام في

العالمي

اإلنتاج

بلغ

فقد

لألسمنت

بالنسبة

أما

2004 حوالي

2 بنسبة

ارتفاعا

ذلك

ويمثل

متري

طن

مليار

2.5) %أو

مليار طن متري في نفس العام األمـر الـذي ،1.8في حين قدر االستهالك بحوالي2003عن عام) مليون طن متري50

. يفوق الطلب العرضأن يوضح

. وقد واصلت أسعار األسمنت في أسواق الشرق األوسط ارتفاعها خالل نفس الفترة وذلك بسبب الزيادة في الطلب

التجـار و لتخفيض األسعار في السوق المحلية وذلك بإلغاء الرسوم الجمركية لتشجيع حيز التنفيذ وضعت العديد من الحلول

.المستوردين لتخفيض األسعار

التركيز على وفرة اإلنتاج وذلك بدال عن المصـانع الصـغيرة التـي فيما يتعلق بصناعة األلمنيوم ،تقترح الدراسة بأن يتم

باإلضافة إلـى. يؤدي ذلك إلى تخفيض تكلفة اإلنتاج وزيادة القدرة التنافسية للمنتجات تتوزع في كافة إمارات الدولة ،حيث

جال تطوير المصاهر الموجودة وإنشاء أخرى جديدة وتنويع المنتجات من خالل قيـام جذب تكنولوجيا حديثة وجديدة في م

تعزيز المشارآة وأخيرا. بدائل مبتكرة مثل المنتجات نصف المصنعة أو تلك الجاهزة للبيع والتي تعتمد على األلمنيوم النقي

. واقتسام المخاطر مع القطاع الخاص



3

Executive Summary

The construction sector in Dubai contributed 7.5 percent to Dubai’s 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, itrepresents 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 Dubai’s 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.



4

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.



5

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



6

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.



7

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?



8

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. Linear Regression Model

ii. Exponential Regression model

iii. 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.



9

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 2001 2002 2003 2004*

Total Dubai (non-oil) GDP 55,970 60,960 65,821 76,458 83,492

Dubai Construction Sector 5,066 5,218 5,378 5,724 6233

Source: Ministry of Planning

* DCCI Preliminary Estimation

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 sector’s 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 Dubai’s 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 2001 2002 2003 2004*

Total Dubai Fixed Capital formation 18716 19486 19970 20860 24658

Fixed Capital formation in

Construction Sector "Dubai" 740 761 780 980 1085



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.



10

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 - 19Employees

20 – 249Employees

250 – overEmployees

Total

Year 2003 2692 705 114 3,511

percent from total 76.7% 20% 3.3% 100%

Year 2004 3279 1042 177 4,498

percent from total 72.9% 23.2% 3.9% 100%

Year 2005* 4507 1223 208 5938

percent from total 75.9% 20.6% 3.5% 100%

Source: DCCI Membership Database* Second Quarter of 2005

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.



11

Figure 4: Main construction Activities in Dubai, 2004

2%

20%

45%

33%

Building Completion Building Installation

Contracting of civil eng. Works 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

TotalIndustrial, Recreational,

& Services Buildings

Multi-storey

Commercial Buildings

Villas & Residential

ComplexesYear

1,9174893301,0982000

2,4454183551,6722001

2,2592894121,5582002

1,8833484231,1122003

2,1192903931,4362004

Source: Dubai Municipality



12

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*

0

50000

100000

150000

200000

250000

E m p l o y e e s N u m b e r

1-19 20 - 249 250 - over

Classes

Source: DCCI Membership Database

* Second quarter of 2005

The largest employer in Dubai’s 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

73.4

20.75.9%



13

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 Dubai’s construction sector

employment and employment productivity.

Figure 7: Employment in Dubai Construction Sector, 2000 -2005*

0

50000

100000

150000

2000 2001 2002 2003 *2004 2005*

Worker & Worker productivity in Construction Sector, 2000 - 2005

Workers Workers productivity



The overall partial productivity of labor in Dubai’s 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.



14

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 2001 2002 2003 2004

Production 845 845 886 963 1050

Consumption 758 766 810 872 918

Excess supply 87 79 76 80 132

Source: MEPS

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.



15

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 2001 2002 2003 2004

Production 10.8 11.7 12.4 13.4 14.2

Consumption 19.9 22.8 23.5 24.4 25.3

Excess demand 9.1 11.1 11.1 11 11.1

Source: MEPS

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



16

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

ProjectProject Name

*Value

"Million"Start End

Client

Emirates Pearl $9,500 Q4 2005 Q4 2009 Al Rayyan Investment Company

Al-Hashemi Group/ Al-Salem Group -Dubai Mountain City

$3,400 Q4 2005 Q4 2008 Al Salam Holding Company

Dubai International Chess City $2,700 Q2 2006 Q4 2009 Armada Group

Gulf Finance House - Dubai Legends $2,500 Q2 2005 Q4 2009 Gulf Finance House (GFH)

Al-Hanoo Holding Company - StarsIslands

$2,500 Q4 2005 Q4 2008 Al Hanoo Holding Company

DCA - Jebel Ali Airport City $2,000 Q1 2006 Q4 2010 Dubai Civil Aviation (DCA)

Falcon City of Wonders $1,500 Q3 2005 Q4 2010 Salem al-Moosa Group

Al Sharq Group - Aqua Dubai $750 Q1 2006 Q1 2008 Al Sharq Group

DTPDC - Dubailand $700 Q1 2005 Q1 2011Dubai Tourism Projects DevelopmentCompany (DTPDC)

Green Works - Al Barari $650 Q4 2005 Q4 2009Dubai Tourism Projects DevelopmentCompany (DTPDC)

I&M Galadari Group - Mall of Arabia $600 Q4 2005 Q2 2008 I & M Galadari Group

Jebel Ali Free Zone Authority - SouthZone

$550 Q2 2005 Q4 2009 Jebel Ali Free Zone (JAFZ)

Dubai Waterfront Company - DubaiWaterfront $500 Q3 2005 Q4 2009 Private Developer

Nakheel - Al Burj Tower $500 Q1 2006 Q4 2009 Nakheel Corporation

IFA - Palm Island New Hotels &Resort

$500 Q1 2006 Q2 2008International Financial Advisors KSC(IFA)

DSC - Victory Heights $500 Q3 2005 Q4 2008Dubai Tourism Projects DevelopmentCompany (DTPDC)

Dubai Municipality - Shaikh ZayedHighway Carriageway

$500 Q1 2006 Q4 2009 Dubai Municipality

Gulf Finance House - Dubai Legends(Basic Infrastructure)

$300 Q2 2005 Q4 2007 Gulf Finance House (GFH)

Source: MEED Projects Database, 2005

* Estimated Value



Table 8: Steel Price in the International Market by Product Type 2001 – 200

Average Price in US$/Ton

Year REBARS BEAMS WIREROD HRPLATE HRCOILS CRCOILS HDGCHR STA

Year 2001 270 326 253 302 250 334 387

Year 2002 278 338 267 305 314 373 439 1

Year 2003 297 371 302 345 342 423 489 1

Year 2004 481 581 474 602 555 635 721

Source: calculations based on data from MEPS International

Fig 8: Stainless Steel SR Type 316 World Average Price, 2001-

2004

1000

1500

2000

2500

3000

3500

4000

2001 2002 2003 2004

U S $

/ T o n

Source: calculations based on data from MEPS International

17



18

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)

Re Bars Beams

Wire

Rod

HR

Plates

HR

Coils

CR

Coils

HD

GCHR

Stain

304

2002 259 286 264 272 288 370 450 1488

2003 311 348 310 326 311 420 488 1643

2004 469 590 485 576 518 610 700 2581

*2005 458 567 492 613 604 703 807 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.

0

100

200

300

400

500

600

700

U S $ / t o n

2002 2003 2004 *2005

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

Source: Calculations based on data from MEsteel.com

* Average from January – March

1 www.Ivforum.com/costdigest



19

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 20,230 20,659 -429

Year 2001 24,466 23,745 721

Year 2002 26,090 25,354 736

Year 2003 27,999 27,482 517

Year 2004* 29,400 29,800 -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.



20

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 expectedto 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.



21

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

Aluminum Association 2002

Rise in primary production will exert upwardpressure on alumina market

8 9

9 0

9 1

9 2

9 3

9 4

9 5

9 6

2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5

R e q u ir e d u ti li s at io n r a te A v e . U ti li s at io n R a t e 1 9 96 - 2 00 1

A l u m i n a r e q u i r e d

Ut i l i sa t i on ra te

(% )

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.


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

Alumina



22

increasing demand, leading to limited production, coupled with an increasing level of

consumption.

1180

1220

1250

1280

1315

1100

1150

1200

1250

1300

1350

T h o u s a n d M e t r i c T o n s

2000 2001 2002 2003 2004

Figure 12: Middle East Aluminum Production, 2000 - 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 re-

exports 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 asmuch 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 IMPORT RE-EXPORT EXPORT

2000 535,675 84,190 3,305,489

2001 728,350 65,742 2,963,722

2002 787,544 92,457 2,623,354

2003 1,067,774 190,717 2,376,207

Source: Dubai Ports, Customs and Free Zone Corporation



23

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 2002 2003 2004 Jan. 2005

Aluminum price 1,536 1,456 1,431 1,662 2,079

Source: minerals.usgs.gov, 2005

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 amajor 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.



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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.

1 6 0 0

1 6

3 0

1 7 0 0

1

6 7 9

1 7 2 0

1 7 0 8

1 9 5 0

1 7 7 6

2 0 0 0

1 8 3 0

0

500

1000

1500

2000

( T h o u s

a n d T o n s )

2000 2001 2002 2003 *2004

Figure 13: World Cement Production during 2000 -

2004

Production 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.



25


Figure 15 below shows the cement production and consumption in the Middle East during the

period 2000 – 2004

Figure 14: Middle East Cement Consumption, 2000 - 2004

0

50

100

150

2000 2001 2002 2003 *2004

M i l l i o n t o n

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.



26

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

0

50

100

150

200

250

300

2002 2003 2004 *2005

A E D / T o n

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.



27

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.

dubai construction sector eng[1]

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