MEP sector faces increasing costs of supplying materials

Materials prices have risen dramatically this year, and the knock-on effect has been felt right across the ME construction industry. Zoe Naylor reports on how increases in the cost of copper and aluminium are giving the MEP sector a tough time.

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By  Zoe Naylor Published  April 22, 2006

|~|118prodmat200.gif|~|Copper prices have rocketed by up to 40% over the first quarter of this year, and are poised to hit the electrical and plumbing sectors in particular.|~|Rising construction costs have been felt right across the Middle East’s construction industry since the beginning of the year. And while cement and steel may have been the hardest hit sectors of last year, the biggest price hikes are now being felt in the MEP sector, as the price of copper and aluminium skyrockets. “Copper has risen in price in the past four months by around 40%,” says Rajkumar Paryani, general manager of Mac Al Gurg, a Dubai-based building materials supply firm. Paryani says that the leap in prices may have been triggered by strikes in the copper mines in Mexico as well as a general decline in worldwide copper resources. As many of the region’s construction projects enter their MEP phase, copper price hikes are poised to hit the electrical and plumbing sectors in particular. “Copper is used in the electrical wires so there’s a huge demand for it, says Paryani. “Without copper, you can’t really have any wiring system in place.” For the plumbing industry, however, there is the option of replacing copper with polypropylene for water distribution. But it may be hard to persuade the local industry to make the change: “Some consultants are now using alternatives, but copper is still the number one product for potable water distribution in buildings,” explains Paryani. “It’s been this way for the last 25 or 30 years — a lot of consultants think it’s still more reliable to use copper rather than go for polypropylene or new products,” he adds. But it’s not just the price of copper that has skyrocketed. According to Siddharth Balachandran, director of Bumga Group, aluminium prices have also seen a massive jump. “If you look at even the last six months, I think we’ve seen almost a US $600 jump in price-per- tonne of aluminium,” he says. Dubai-based Bumga Group is involved in the supply of building materials such as structural steel, timber products, and metals like aluminium and galvanized sheets. According to Balachandran, the overall price of commodities such as base metals, for example copper and zinc, has soared due to a huge raw material shortage. “Raw materials are in demand all over the world, whether it be timber or metals from iron ore,” he says. “All this leads to a crisis in the base metal sector, which means you need to increase the price of finished products such as structural steel. It’s a vicious circle.” The trend for tower construction in Dubai is placing increasing demands on the supply of structural steel, says Balachandran. “Demand for structural steel has ballooned of late because of all the high-rise buildings coming up in Dubai,” he explains. “Earlier, structural steel was used only in the fabrication industry but now the construction industry has started using it,” he says. Bumga Group sources steel from India and Korea, but in terms of cost-effectiveness, Balachandran says the former CIS countries are the primary source. While the hike in steel prices has been well documented within the construction industry worldwide, Balachandran believes a significant price correction is unlikely. “Prices for steel have been rising for the past four or five years barring a few periods of correction that is normal in any industry. “This has been probably the longest bull run in the industry within the commodities sector. There was a slight correction last year, but I think the demand, coupled with China starting to slowly import again, has resulted in a huge jump in prices. “I foresee stronger consolidation without any significant correction. This should last probably until the year-end. After that prices should stabilise — I don’t see a significant drop, but there should be more stability,” he adds.||**||

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