Qatar keeps up with construction demand

As with every construction boom, the cost of materials in Qatar remains a concern, especially the rising cost of primary construction materials. With demand for gabbro, bitumen and limestone expected to show triple-digit increases in the near term, contractors are facing serious challenges in delivering key infrastructure projects on time and on budget. The situation is exacerbated by the hard deadline set by the 2022 FIFA World Cup; while projects under Qatar National Vision 2030 (QNV 2030) have the advantage of flexible timelines, and could be delayed if fast-rising materials prices proved untenable for contracts, developments such as World Cup stadia cannot be postponed.

Cement and clinker capacity is set to rise significantly, while Hamad Port, formerly the New Port Project, which will open in 2016, will reduce supply bottlenecks and ease the flow of goods. However, Qatar’s domestic industry is still in need of significant capacity upgrades over the next several years, presenting new opportunities for domestic producers and potential investors.

According to a November 2014 report from Qatar Construction News, materials inflation is set to rise by 18% annually by 2018, presenting challenges to contractors in the state, while a 2013 report by EC Harris found that total construction inflation is projected to reach 18% annually between 2016 and 2019, putting cost pressures on Qatari and international contractors.

Ministry of Development Planning and Statistics (MDPS) figures project primary materials in the 2014/15 fiscal year to show triple-digit increases: gabbro demand to jump by 145% in 2014, and an additional 86% in 2015; and bitumen demand to rise by 139% in 2014/15. Meanwhile, Qatar’s Ashghal (the Public Works Authority) has estimated that selected projects scheduled for completion between 2012 and 2022 will require 495m tonnes of limestone alone. “We are not at the stage where there is a significant material shortage, but should there be a severe shortage it would lead to hyperinflation, and potentially to failure of the supply chain,” Philip Darby, partner at EC Harris, told OBG.

PRODUCTION: In April 2014 Sheikh Ahmed bin Jassim bin Mohamed Al Thani, the minister of economy and commerce, reported that Qatar has 432 building materials manufacturing companies worth a total of $10.4bn and employing 36,400 individuals. Local production bases are active in cement, gypsum, sand, stone, glass, fibreglass, plastics used in the manufacture of pipes and insulating materials, dyes, construction chemicals, and metal industries including iron and aluminium.

This is expected to rise, as new deals in 2014 saw a number of cement and steel projects launched, which will significantly increase domestic capacity, while the government is working to nurture local industry and establish new production facilities, especially in the small and medium-sized enterprise (SME) segment.

CEMENT: According to an April 2014 report published by Dubai-based Arqaam Capital, cement demand in Qatar is expected to double over the next three years, to reach 9.4m tonnes per annum (tpa) in 2017. The MDPS, meanwhile, projected that limestone demand would grow by 127% in 2015, while demand for washed sand is expected to grow by 106% in 2015.

Cement production in the state is dominated by Qatar National Cement Company (QNCC), which has a production capacity of 4.4m tpa, equivalent to a 62% market share. QNCC facilities include four cement lines, a calcified lime plant, a hydrating lime plant, a cement plant, two clinker plants and a sand washing plant. Al Khalij Cement is the second-largest player, with capacity of 1.8m tpa of clinker and 2.7m tpa of cement.

Mid-term capacity is set to expand; in April 2014, QNCC signed a letter of intent with Fives FCB to build a fifth cement plant line with a clinker production capacity of 5000 tonnes per day (tpd). The project’s turnkey contract has been valued at $261m, and includes construction of two cement mills, with work completing in 27 months, boosting grinding capacity to 20,000 tpd and clinker capacity to 17,000 tpd.

Al Khalij Cement, meanwhile, has plans to double production at its existing cement line, announcing in December 2013 that it had signed an $86m deal with Denmark’s FLS midth covering supply of a line for the company’s Umm Bab plant, located 100 km east of Doha. The line will be a duplicate of an existing line, also supplied by FLS midth, with the order covering conveyor belt transport systems, mills, a complete pyro line, electrical and automation systems, and filters. “Current expansionary projects of clinker and cement factories will make Qatar’s construction sector entirely self-sufficient in these materials. In comparison to the 2006 Asian Games, the situation in the industry is now more stable. The increased number and capacity of cement producers will offset inflationary pressures in the lead up to 2022,” Faisal Abdullah Almana, the managing director of Al Khalij Cement, told OBG.

STEEL: According to a December 2014 report by the World Steel Association, Qatar is one of the highest per capita consumers of steel globally, with per capita consumption of finished steel standing at 1288 kg, compared to 323 kg in Saudi Arabia, 385 kg in Kuwait and the world average of 240 kg. Domestic steel production is overseen by a single supplier, Qatar Steel, acting as a single source for distributors to buy from, which will help control the cost of primary commodities. Recent developments, including the addition of a new greenfield steel plant, will help the company meet growing construction demands. Qatar Steel’s $1.1bn SMS Greenfield Project was launched in February 2014, adding annual designed capacity of 1.1m tonnes and boosting steel billet production to over 3m tpa. The company’s rebar production volume grew by 4% to 2.04m tonnes in 2013, while rebar sales rose by 5% to 2.11m tonnes.

SMES: Stakeholders including international consultancy EC Harris have argued that developing local industry at the SME level would also help reduce material shortages, as well as enhance economic diversification as mandated by QNV 2030. However, challenges including the rising price of land have had an impact on the state’s ability to supply materials in the future.

“Pricing and land availability are constraints. Land prices from private owners are very high and not feasible for setting up manufacturing facilities. Land in government industrial parks is limited due to high demand and limited supply. We wanted to develop a steel galvanisation plant to create an integrated facility. We received only 50% of the land we asked for, so we will have to manufacture regionally and then import,” Nishad Azeem, founder and CEO of Coastal Group, told OBG.

The government has moved to reduce these barriers, with the Ministry of Economy and Commerce announcing in June 2014 that it had allocated three plots of land to be used as SME industrial areas. At the same time, ongoing development of three planned special economic zones near Hamad International Airport, Hamad Port and southern Doha will target SMEs, increasing the availability of facilities for industrial firms hoping to strengthen the state’s supply of materials.