June 24, 2015 / 12:19 PM / in 2 years

Qatar building materials costs to surge ahead of 2022

DUBAI (Reuters) - The cost of construction materials in Qatar is likely to jump as the host nation intensifies infrastructure building ahead of the 2022 World Cup, and other building projects could finish late as a result, industry experts say.

Qatar is set to spend more than $200 billion on the soccer tournament as part of a 2030 development plan, although tough contract terms and state bureaucracy have left some contractors in difficulties.

Corruption allegations at soccer’s governing body FIFA have put renewed media focus on Qatar, although Qatari officials say they are confident the 2022 tournament will go ahead as planned.

The high level of construction activity – predominantly in the capital Doha – is already making it hard for contractors to get workers and materials to sites.

“The pinch point will likely be in 2017-19 when the construction work peaks, but the government can take measures to mitigate that,” said Nick Smith, Partner at engineering consultants Arcadis in Qatar. He predicted materials inflation would be about 3 percent in 2015.

“This will include early supply chain engagement, standardization of products and direct procurement of certain items. Qatar is already pursuing some of these initiatives.”

Materials inflation could surge to 15-20 percent from 2018, said Steven Humphrey, a director at infrastructure specialists AECOM.

Qatar witnessed a similar phenomenon ahead of hosting the Asian Games in 2006. Also, construction inflation fluctuates more than general inflation and small markets such as Qatar are less able to absorb changes in workload, a report by Arcadis unit EC Harris states.

“Qatar, like most other Gulf states, has suffered from projects being delivered late, sometimes over budget and usually because the scope has changed from what was originally set out,” said AECOM’s Humphrey.

“With a fixed deadline like 2022 these attitudes will not be permitted. As prices get squeezed, contractors who bid at the incorrect prices will shy away from doing the projects and move their resources into more profitable projects.”

Qatar will import many of the building materials it needs from neighboring United Arab Emirates. Doha’s limited port facilities mean these goods must travel on small barges or via truck through Saudi Arabia, adding to supply chain pressures.

“Contractors pick and choose what their priorities are, so there’s a real danger – looking at bids today where they seem very competitive – that these are projects that may not be able to be delivered on time,” added Humphrey.

Commodity prices have dipped, helping to mollify materials inflation in the short term, with spot iron ore prices slumping to a near four-week low last week as slow Chinese steel demand kept steel futures near their weakest since their 2009 launch.

Reporting by Matt Smith; Editing by Jon Boyle

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