Global trade war prompts Gulf construction reassessment

• Aluminium up 9%, cement up 5.5%
• Luxury hotels most affected
• But suppliers may lower prices

The global trade tensions triggered by Donald Trump’s tariff hikes is sending shockwaves through the Gulf’s construction sector, leading Saudi Arabia and the UAE to rethink sourcing materials and supply chain networks.

The risk of costs accelerating has risen, but over the longer term prices could temper, providing a cost opportunity for the GCC, industry experts say.

As the US and China lock horns on trade, the ripple effects are being felt around the world, upsetting the international trading order and driving down stock markets and oil prices.

The Gulf construction sector, a cornerstone of the economy and a central pillar of Saudi Arabia’s Vision 2030 economic transformation strategy, is in the line of fire.

Gordon Rodger, managing director at UAE-based consultancy Stonehaven, says there are likely to be commodity issues “across the board”.

He says the price of steel will go up, as may that of copper and aluminium. “These are the raw materials that make the air conditioning units or the plumbing fittings and accessories,” he says.

Saudi Arabia’s $500 billion Neom project alone is consuming one fifth of the world’s steel output, according to its chief investment officer, Manar Al Moneef.

Stonehaven is forecasting cost hikes of up to 5 percent in the UAE construction sector and as much as 7 percent in Saudi Arabia. 

Luxury developments, particularly five-star hotel projects, are already experiencing the sharpest uptick in costs, driven by high-end material imports from Europe and the US.

As the dollar has weakened against major currencies, so have the dollar-pegged UAE and Saudi currencies. Imports from the Eurozone and the UK are now more expensive in local currency terms.

Even before Trump announced his April 2 tariff plan Gulf construction costs were rising. 

According to Stonehaven’s latest industry report, concrete prices rose 4.8 percent quarter-on-quarter in the three months to December 31. Aluminium surged 9 percent and cement 5.5 percent. 

‘Huge opportunity’

On the flip side, output originally targeted for the US market, for instance from China, could offer a cost opportunity for developers in the six-member Gulf Cooperation Council, of which Saudi Arabia and the UAE are the biggest by gross domestic product.

US tariffs on Chinese goods now stand at 145 percent, making Chinese goods potentially prohibitively expensive in the US. Most other countries in the world are also subject to a baseline 10 percent US tariff.

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“Reduced US demand could lead to global suppliers lowering their prices, potentially benefiting UAE developers in the medium term,” says Matt Myers, assistant professor of real estate at Heriot-Watt University Dubai. 

“Sellers will need to compete, and this could bring down construction costs, despite current inflationary pressures.”

The UAE and Saudi markets could also benefit from US tariffs placed on countries such as Turkey, India and Vietnam, as these exporters compete to find or expand new markets.

“They will be looking at the likes of Saudi Arabia and saying there’s a huge market there; they’re not imposing tariffs,” says Stonehaven’s Rodger. 

“There’s definitely a huge opportunity all around the region.”