GCC building materials market rides region’s real estate boom
The global building materials market totalled about $800 billion in 2015. The GCC accounts for approximately three per cent of the global construction materials market today.
The building materials market is made up of stone, bricks, cement, concrete, glass, steel and aluminium.
Cement is a lead indicator of construction activity and health in the region. Cement accounts for about 15-20 per cent, or about $4 billion of the total value of building materials sold in the GCC today. Cement demand has grown at 5-6 per cent over the last five years.
The Kingdom of Saudi Arabia (KSA) and UAE account for most demand for cement in the GCC, about 84 per cent in total. The preponderance of local demand shows an industry getting healthier.
In the earlier decade, over-supply and shrinking domestic demand contributed to aggressive export strategies to Africa and Iran. During this period there was significant price erosion as too much capacity chased too little demand.
Reuters stated that the UAE alone has cement capacity of 41 metric tons. Current UAE demand is around 21 metric tons, indicating that over-capacity is still a problem.
The KSA cement companies and the Saudi Cement Company in particular, are the largest and most profitable in the GCC. The main contributor being very low energy costs for a very energy intensive industry. Growth in KSA construction is expected to make the domestic cement suppliers there even more profitable. However, the cement business in the UAE is still going to be a challenge. Profitability of UAE cement suppliers is well below that of others in the GCC region, primarily due to the over-capacity problem.
Building materials suppliers serving the GCC can expect future growth, but it will be “lumpy”. The UAE is the largest construction market in the GCC. Prior to 2009, Dubai alone accounted for 25 per cent of all construction in the world.
Today, excess materials and unoccupied apartments and offices are being reduced and the UAE construction market is returning to something more sustainable. While Abu Dhabi and other emirates have remained relatively conservative in their approaches to diversification, Dubai, which has far smaller oil reserves, was bolder in its diversification policy. Government support and investor friendly regulations have helped to increase construction activity there. UAE construction is expected to benefit greatly from Dubai’s Expo 2020 win as well. Rising optimism is leading many to restart stalled projects. Growth in UAE institutional, residential, and industrial construction sectors is expected to accelerate over the next five years.
Saudi Arabia’s construction market is the next largest in the region. The country is currently facing a huge housing shortage due to a rising population and expatriate growth. The government is instituting a major housing plan which will boost demand for more residential construction and demand for building materials there. Construction in the KSA is expected to grow rapidly over the next five years due to residential construction and major downstream chemical plant construction.
Infrastructure expansion plans for global sporting events such as the 2022 FIFA World Cup is set to increase demand for building materials in Qatar. Given the rapid rise in cement demand, Qatari companies appear to be slow in gearing up capacity, adding to the possibility of future cement shortages in Qatar.
Oman is one of the biggest oil producing countries in the world. Oil accounts for 51 per cent of its GDP. Construction represents about five per cent of the country’s GDP and most of that will be related to oil over the next five years.
The Kuwaiti construction market, with no major projects on the horizon, is relatively quiet. Construction accounts for only two per cent of its GDP. The construction sector in Bahrain currently contributes to about 11 per cent of its GDP. Growth is mainly attributable to infrastructure and housing projects there.
The GCC construction industry is steadily recovering from the real estate crash and global economic recession in 2009-2010. There is still substantial over-capacity in materials, especially cement in the UAE.
However, the housing development plan in the KSA, the Dubai 2020 World Expo, and Qatar hosting the FIFA World Cup in 2022 will contribute to five per cent annual growth in GCC construction over the next five years.
The writer is partner at Cedar. Views expressed are his own and do not reflect the newspaper’s policy.GCC building materials market rides region’s real estate boom