Contractors braced for costs crisis escalation

Diesel, rebar, steel, aluminium, copper and labour costs all on the rise across the Gulf

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By  Angela Giuffrida Published  April 29, 2006

Projects across the Gulf could be shelved if the escalation of construction costs continues. Cost and property consultants have warned that some developers are already re-assessing the viability of their projects in the face of crippling price hikes. The metals sector has been hardest hit, with the latest price of aluminium pegged at $2,721 a tonne, while copper stands at $6,706 a tonne — almost triple the price of 2004. In the last month alone rebar has moved out from around $450 per tonne to $480 per tonne, according to mesteel. Diesel prices are also on the rise again, triggered by record oil prices — and the trend is adding huge costs to the operation of plant and machinery and the transportation of goods. The price of diesel has already risen twice in the space of a month and stood at $2.28 per gallon this week — compared to $1.68 at the same time last year — a rise of nearly 36%. Experts warn that the price hikes, along with the rising cost of oil — which has reached a record $75 a barrel — could have a serious impact on the regional construction industry. “Business will be affected if companies sign up for fixed price contracts,” said Mark Prior, regional managing director at cost consultant EC Harris. “Projects could also become unviable — although it’s not just because of the rise in material prices. The increase in land values, which is now no longer granted free as of right, will have an impact too.” Colliers International director Ian Albert, agreed: “Certainly, a number of clients are looking at their options and re-assessing their major projects,” he said. Prior warned that the trend could impact on the quality of construction. “People will look to reduce quality, as a last resort to increasing viability, both from the contractors’ and developers’ viewpoint.” The rise in diesel prices has forced many haulage companies to increase their hire rates. “This has impacted our business; we have to pass on the extra cost to the customer. And we can only envisage these costs worsening,” said Umer Arakkal, process manager at Global Shipping & Logistics LLC. Contractors are being urged to develop better estimating procedures in order to fend off potential losses. “Many contractors were affected by the previous hikes in material costs, especially in cement and steel, and may already be allowing for potential material cost increases when submitting an ITB,” said Gordon Moffat, managing director of Knowles Middle East. MEP companies are expected to bear the brunt of the rising materials and oil costs. “The price of oil has more of an effect on imported materials, such as air conditioning units, which the MEP sector relies on,” said Graham Wright, Qatar country manager for Gardiner & Theobald Middle East.

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