Aluminium suppliers and manufacturers are getting a feeling of déjà vu as prices are escalating just like they did before the crisis. CW talks to companies within this sector to find out how this situation is affecting them and how it will affect them in the future.

In August 2008 the prices of building materials, from concrete to copper, peaked as a result of rising oil prices and the increased demand on supplies, due to the construction boom.

Prices then plummeted during the financial crisis - a time when projects were halted and the demand for materials diminished, particularly in Dubai.

Suppliers, which were attracted to the Gulf during the time when construction was rife, were left to compete with the many other manufactures and dealers trying to get work.

At present, it seems that the price hike is repeating itself - just last week CW reported that steel prices had increased by US $272 (AED1000) per tonne, and now the cost of aluminium appears to be gradually following the upward trend.

"Over the last 12 months between February 2009 and February 2010, the 60 building work categories [including metals and timber] have recorded an average rise of 1.4%, but over the last six months between August 2009 and February 2010 an average rise of 2.0% has been recorded, illustrating how the trough of the cost trend occurred mid summer last year," says a recent report from Davis Langdon.

High prices

The London Metal Exchange (LME) listed the price of primary aluminium in January 2009 as US $1413 per tonne, falling slightly to $1330 per tonne in February before rising to $1420 per tonne in April.

The price of aluminium is now rated at $2380, that's a 67% increase on last year. And oil costs recently rose above $85 per barrel, which could rocket the price of aluminium even further.

"The LME rate will cross the $2400 per tonne level this year," predicts Khalfan Al Suwaidi, general manager of Emirates Extrusion Factory, a subsidiary of M'Sharie, a private equity arm of Dubai Investments.

"If the Iranian nuclear issue escalates, this may be the biggest factor that affects the oil prices, which is directly correlated to the price of aluminium. Also, if the US and European economy picks up, then aluminium prices will definitely go up."

Before the financial crisis, the price hike was perceived as good news for aluminium suppliers because, due to the high demand for building materials, they were able to negotiate prices.

Some packages acquired for Infinity Tower in Dubai Marina, for example, were subject to price escalation.

"Between 2007 and 2008 material prices went up, which is when we signed the sub contracts. Still to this day, we have very high prices supplies on site," Cayan chief development officer Ahmad Kasem told CW on a site visit in February.

Dubai's Mirdif City Centre also suffered a few knock backs due to the high prices of materials.

"We started off the job when Dubai was red hot and as we got it to the project the market escalated quite rapidly and some of the later packages we acquired were prone to inflation," says Majid Al Futtaim senior vice president for project management Jonathan Emery.

"Sub contractors and supply chains were taking advantage of the market and, due to the demand, they were able to renegotiate prices, so we had to deal with that."

But, things are different now and the demand for construction supplies is shrinking rather than souring.

Low demand, over supply

"As the aluminium industry in the Middle East was mainly catering the construction sector, the present market conditions have largely affected the industry. The demand for the aluminium has not yet picked up," says Gulf Extrusions managing director Modar Al Mekdad.

"The demand has been declined dramatically by around 70% so far," agrees Suwaidi.