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While Abu Dhabi's building boom may be pulling in major investment and interest from around the world, it is also posing fresh challenges on the construction supply side. Demand for cement and steel in particular have been growing, with announcements on both products in recent days showing both the tensions in the sector, and the recipes for their solution.

First, on the down side, the UAE Contractors Association issued a warning on October 2 that it would take action against cement companies that raised their prices. This came after recent hikes saw cement up by 8% per tonne and 10% per bag.

"Last year, prices reached skyrocketing levels," the association's chairman, Ahmad Balhasa, told reporters. "We will move to control the price of cement before that happens."

The association is the UAE's supervisory and regulatory body when it comes to the prices of building materials. Balhasa also warned that the association was well aware that certain cement companies were aiming to put up their prices still further, bringing the rate up to Dh320 per tonne ($87).

Companies retort that the price hikes are inevitable given the increasing costs of energy, with fuel recently raised by some 30%. Yet Balhasa described this as "illogical" given that "cement prices are already high". He said instead that the planned hikes represented firms taking advantage of the open market to "reap windfall profits at the expense of others".

The issue of cement prices has come after a period of complaints from many Abu Dhabi-based enterprises over rising costs. The Khaleej Times reported in its October 2 edition that both raw material and labour inputs were climbing in price, forcing many enterprises to think again about expansion - and instead concentrate on cutting current expenditure.

Yet at the same time, other supply side problems in the construction sector are clearly being addressed more positively.

While steel had been a particular problem area recently - particularly when it came to high quality or specialised varieties - Al Nasser Industrial Enterprises (ANIE) has now moved to the rescue.

One of the UAE's leading private-sector manufacturing companies, ANIE announced on October 2 that it would set up two steel manufacturing plants at a 200,000-sq-metre area in the Industrial City Abu Dhabi (ICAD) in Mussafah.

The plants will have a combined capacity of 450,000 tonnes per annum (tpa) and represent a major backward integration for ANIE's steel manufacturing business.

One of the new plants will manufacture steel billets and the other will use the HYL ZR process to produce direct reduced iron (DRI). When completed in early 2007, the plants will boost the firm's total steel manufacturing capacity to 600,000 tpa.

"The UAE is investing heavily to build new infrastructure," Abdulla Nasser bin Hawaileel al-Mansoori, chairman of ANIE, told reporters when announcing the new move. "Steel is a critical commodity in constructing roads, bridges, power plants, airports, housing and other developmental projects... We expect continuous growth in the demand for steel in the coming years and our investment in these facilities represents ANIE's intention to support the government's endeavours in transforming the UAE in general and Abu Dhabi in particular into one of the most advanced and infrastructurally attractive locations in the region."

The backward integration into billets and DRI will also reduce dependence on the global market for further growth. With materials such as iron pellets available regionally, al-Mansoori added, the new plants would take advantage of an important local resource.

The plants will also give a further boost to local employment, with 300 new jobs
envisaged, adding to the emirate's overall vision of diversification away from energy.

The plants will be natural gas powered, with HYL Mexico and GA Danieli the technology and equipment suppliers and MN Dastur & Co. the project consultants. The plants will be the first micro modules built anywhere in the world by HYL and will have the ability to be scaled up in future enough to double capacity.

The new plants will therefore be a welcome addition to the emirate's industrial base and to its construction sector, which is facing enormous demand both in Abu Dhabi and elsewhere. Keeping prices at levels company's find reasonable - particularly given the time lags involved in major building projects - will meanwhile be an important task for sector regulators to watch over, although boosting supply in the market itself may be the best guarantee of keeping costs down.

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