Cement manufacturers in the UAE raised their rates as much as 15 per cent yesterday, drawing complaints from the struggling construction industry with contractors saying they cannot afford the increases.
"Our margins are extremely thin," said Matti Mikkola, the chief executive of Dubai Precast. "Anyone in the construction industry is just trying to survive."
Major cement manufacturers sent out notices last week advising clients of the increases. The new rates reflect a rise in electricity and production costs, manufacturers say.
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The volume of cement production has also dropped dramatically in the wake of the construction downturn in the UAE.
Prices are now generally between Dh200 (US$54.44) and Dh250 a tonne, far below the Dh420 a tonne the manufacturers were charging during the building boom. The increases announced last week were on average about Dh30 a tonne.
The price rises will send ripples through a construction industry still reeling from the sharp reduction in development in the past two years.
"This is, in my opinion, irresponsible and short-sighted, especially at this moment in time," said Khalfan Saeed Jumma al Kaabi, the chairman of Ascorp Holdings and the first vice president of the Abu Dhabi Chamber of Commerce.
"We should not allow a small group to destroy or hinder the revival of the economy."
The UAE's Ministry of Economy has capped cement prices in the past. But the current prices are below those levels, industry executives say.
Construction companies find themselves caught between the cement manufacturers and builders who are looking to cut costs in hard times.
"We can't go back to the market and ask for customers to pay," said Abdel Razzak Dajani, the managing director of Xtramix Concrete Solutions. "We tried that and they said no."
Contractors are likely to raise their rates on future contracts to cover the costs. However, they will have few options with existing contracts as the increases were announced at short notice, Mr Mikkola said. His rates went from Dh194 a tonne to Dh230 a tonne.
"We will have to absorb all of that," he said. Revenues for the cement industry in the UAE were down 29.8 per cent for the first nine months of last year compared with the same period of 2009, from $728.9 million to $511.5m, according to Global Investment House.
"Operating levels are expected to fall as increased competition and the drop in cement demand continues into 2011," according to a recent report by International Cement Review (ICR), an industry publication.
Overall, cement prices in the region dropped 13 per cent last year from 2009, ICR reported.
"The cement capacity build-up in the GCC and neighbouring regions, alongside a reduction in spending with lowered oil receipts, would place downwards pricing pressure on construction commodities across the whole region," ICR said.
UAE cement companies have been struggling for the past year. In August, RAK Cement posted a Dh1.2m loss for the previous six months, compared with a Dh51.1m profit for the same period in 2009. Sales revenue decreased 20 per cent compared with the same period a year earlier. Union Cement revenues dropped from Dh409m in the first six months of 2009 to Dh313m in the same period last year.
The company posted a Dh9.8m loss for the first six months last year compared with a Dh90m profit for the same period in 2009.