DUBAI, (Reuters) – United Arab Emirates cement producers agreed with the Ministry of Economy to cut their prices by almost 6 percent with immediate effect as part of a federal drive to control inflation, the ministry said.
The producers agreed to lower their prices for a 50 kilogram bag to 16 dirhams ($4.36) from 17 dirhams, and to increase their production by two-thirds to 250,000 bags per day, the ministry said in a statement given to reporters in Dubai on Monday.
“The signing of the agreement is very timely since, besides controlling the price of cement, it also positively influences different market trends,” Ahmed Saif Belhasa, chairman of the UAE contractors association, said in the statement.
The ministry did not immediately give details about UAE cement production and the planned increase. Inflation in the UAE, the second-largest Arab economy, will probably rise to 12 percent this year, from 11 percent last year, according to the median in a Reuters survey of 11 banks and research companies.
Cement prices have been rising, in part becaues of higher fuel costs. Oil prices have almost doubled in the last year.
UAE demand for cement could rise to 26.2 million tonnes by 2011, even as supply worries remain, as companies and governments invest in construction projects, Abu Dhabi-based investment bank The National Investor said in March and began coverage of five UAE cement companies.
The UAE, the world’s fifth-largest oil exporter, has been striving to diversify its economy away from a dependence on energy exports by pouring windfall oil revenues into real estate, financial services and infrastructure.
“With real estate as one of the key positioning statements for the UAE today, cement demand continues to be buoyant,” The National Investor (TNI) said.
Between 2003 and 2006, cement consumption in the UAE grew at a compound annual growth rate of 24.7 percent and this is expected to be sustained in the future as the smaller emirates join “the real estate frenzy”, TNI said.
In Abu Dhabi alone, planned real estate projects are valued at more than $150 billion, the investment bank said. However, there are definite supply worries.
Nearly all major UAE-listed companies have undertaken expansion, but not all of this new capacity has come on line yet, TNI said.
The investment bank, which has a “neutral” outlook on the cement sector, said it expected the bulk of new capacity to hit the market between 2008 and 2010.