Friday, January 16, 2015

Soft oil price need not have immediate effect on costs

Dubai: The weakness in oil prices need not have an immediate impact on building material costs.


"A low oil price will theoretically reduce the cost of power to produce energy-intensive materials such as cement," said Christopher Seymour, Partner and Head of UAE Property at EC Harris, the consultancy.


"However, this is unlikely to be felt immediately since most producers of such materials include an energy price hedge in their cost of production. Hence only if there is a long-term sustained reduction in the price of a barrel of oil will this be felt by lower prices.


"Indeed some of the regional governments — for example, Oman — has been talking about reducing the power subsidy, which will have the opposing effect. The greater effect on construction inflation would be felt if the spending plans of the regional countries were to reduce due to the lower GDP caused by the reduction in oil price.


"But we are yet to see any material effect of this."