Tuesday, October 18, 2005

Cement prices up 7% :: Khaleej Times

Cement. A mundane product. But in the context of the building boom in the UAE it's quite important.

Cement is heavy, hence the recent increase in fuel prices in the country have pushed up the cement producers' cost of transporting the product within the country. Customers tend to understand these price increases.

When increases in price are driven by an increases in demand, customers often complain these price increases are not justified. What they have in mind is that if the cement producers expanded and invested in new plant and equipment it should be possible to produce to satisfy the growth in demand with little or no increase in price. What is omitted from this thinking is that cement producers are aware that the construction is cyclical. They do not want to be left holding a lot of excess capacity when demand recedes. Implicitly builders are demanding that cement producers share in the risk that the boom will go bust.

The article mentions that last year the government placed a price ceiling on cement. The result was a shortage; no surprise there. What is not clear is whether the price ceiling is still in place and these announced increases in price represent an adjustment in the ceiling due to the recent increase in the price of fuel.

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Blogger muscati said...

When the UAE cement industry last suffered from excess capacity a few years ago they resorted to dumping cement in Oman which made the Omani producers run to the government demanding protection. But these days demand is very high on cement everywhere and they're all making big money. Except I've been reading about excess capacity in Iran. Dunno how that will turn out and how it will effect us.

12:39 AM  

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