Saudi to benefit from global drop in demand for building materials

Reuters

• Kingdom holds 35% market share of Mena construction contracts
• 70 percent of projects for homes, culture, leisure and hospitality

Developers in Saudi Arabia are poised to capitalise on a global drop in demand for construction materials.

The overall projected increase in building costs appears to be less than first feared. According to a report from JLL, KSA Construction Market Intelligence Q4 2022, construction commodity prices have “flatlined” since hitting their peak in July, with aluminium falling 23 percent year-on-year in the 12 months to October.

Copper was also down 22 percent and iron ore prices declined by 25 percent.

The report revealed that the supply price for rebar (12-32mm steel bars) peaked at SAR 3,200 ($853.33) per tonne during Q2 2022, before declining 13 percent to SAR 2,800 as of November 2022.

• Labour challenge as Saudi’s mega projects gather pace
• Saudi giga-projects: ‘enough work for every sector of the industry’

“There are surely opportunities to be seized here. However, the extent of how this can be used would mainly rely on contractors buying forward,” Ziad El Chaar, vice chairman of Dar Al Arkan Real Estate Development, the kingdom’s largest listed developer, told AGBI.

The seasonally adjusted Global Steel Users Purchasing Managers Index (PMI) fell from 49.7 in October to 47.6 in November, signalling the steepest deterioration in global operating conditions since May 2020, reported S&P Global. 

It was a similar story for aluminium, with S&P’s PMI showing a drop from 49.6 in October to 47.3 in November. The fall in the headline figures “reflected stronger declines in new orders, output, employment and stocks of purchases, slightly offset by a greater lengthening of suppliers’ delivery times”.

However, steel demand in the Middle East and North Africa (Mena) region remains strong as JLL reported significant mission critical infrastructure demand in Egypt and substantial construction growth in Saudi, in line with the kingdom’s giga-project programmes. 

• 

• 

The report said: “Future price levels will be balanced against rising inflation, interest rates, input costs driven by the energy crisis and specific local market conditions including skilled labour shortages, rising labour costs and competition.”

Across Mena, Saudi Arabia has maintained its position as the strongest market with the highest total value of project awards for four consecutive years. As of October, the kingdom holds a 35 percent market share with a recorded $31 billion worth of contract awards against an overall Mena total of $87 billion, as tracked by MEED Projects. 

The pipeline value of unawarded (pre-execution) projects for Saudi Arabia is estimated at $1.1 trillion, consisting of projects from study stage through to main contractor bid with a planned award date up to 2027.

An estimated 70 percent comprise of ‘construction’ sector projects with residential, cultural, leisure and hospitality as sub-sector leaders and the driving forces behind economic diversification and the Vision 2030 strategy.

Mohamed Al Ahmedi, CEO of Ducab Metals Business (DMB) said: “The demand in Saudi Arabia being on the higher side, and the subsequent growth in the construction industry, in addition to other vital sectors, is a major factor driving the metal market to expand. 

“Furthermore, securing the industrial requirements in terms of finished products or raw material is an objective within the Saudi developments to service the various infrastructure requirements within construction, transportation and energy fields. Technical developments driven by the end user demands are essential to accelerate market growth for Saudi Arabia’s prime metal market.”

Meanwhile, JLL estimated that overall tender price inflation (TPI) has increased by an annual average of 5 percent in 2022. Although this is in range of the initial forecast of 4-6 percent, it is considerably less than the 20 percent rise predicted by El Chaar in an interview with AGBI earlier this year.

He has since revised this figure, although he said the increase would be “at least 10 percent”, specifically in Dubai.

“The estimate shared in the (JLL) report depends on both country and city; for example, even though there was an increase in global energy costs, savings were incurred in both the Eurozone and the UK due to currency fluctuation and exchange rates,” he said.

“Additionally, the price of many materials from China is still stable.”