Gulf's cement industry in Dh15b capacity expansion - Gulf News
With increase in the world price of oil and the post war rebuilding of Iraq there has been a substantial increase in demand for cement in the Gulf. I've got an economist colleague who's always regretted getting out of the lucrative cement business of 1970s Tehran, and now I'm sure he's regretting that career choice even more.
Standard supply and demand analysis does a good job of explaining the dynamics of price and quantity movements suggested by the news article: The increase in the price of oil means more oil income flowing to national treasuries. This has increased demand for many products and services including cement for buildings and roads and the like. The result has been an increase in the price of cement which brings with the profit opportunities that create the incentive for expansion of capacity. The expansion of capacity takes time, but as it comes on line supply will increase and price will come back down.
In the meantime, some GCC countries have intervened and put a quota on cement exports. Even within the UAE there has been intervention between Emirates fueled by price controls which limited the price increases (the natural response of cement-producing Emirates was to curtail exports to their neighbors and direct production towards construction projects at home).
A possible research question: Is the increase in demand for cement a permanent increase in demand? Why? Would you expect regional capacity to keep up with regional demand if it is not?
With increase in the world price of oil and the post war rebuilding of Iraq there has been a substantial increase in demand for cement in the Gulf. I've got an economist colleague who's always regretted getting out of the lucrative cement business of 1970s Tehran, and now I'm sure he's regretting that career choice even more.
Standard supply and demand analysis does a good job of explaining the dynamics of price and quantity movements suggested by the news article: The increase in the price of oil means more oil income flowing to national treasuries. This has increased demand for many products and services including cement for buildings and roads and the like. The result has been an increase in the price of cement which brings with the profit opportunities that create the incentive for expansion of capacity. The expansion of capacity takes time, but as it comes on line supply will increase and price will come back down.
In the meantime, some GCC countries have intervened and put a quota on cement exports. Even within the UAE there has been intervention between Emirates fueled by price controls which limited the price increases (the natural response of cement-producing Emirates was to curtail exports to their neighbors and direct production towards construction projects at home).
A possible research question: Is the increase in demand for cement a permanent increase in demand? Why? Would you expect regional capacity to keep up with regional demand if it is not?
posted by John B. Chilton at 2/03/2005 02:06:00 PM
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