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DOHA: A leading Forex brokerage company has advised Qatar’s property developers to go for hedging to protect against price volatility.
Qatar is one of the GCC countries that is expected to feel the pressure of rising costs, especially with the 2022 FIFA World Cup on the horizon and with a significant amount of development needed before the event. A steady rise in demand of the materials and an anticipated increase in construction spending, is already impacting the market in Qatar where prices are being driven higher than in the UAE, with the average rate per tonne for rebar in Qatar is currently 32 percent higher than in the UAE, Iskandar Najjar, CEO of Alpari ME DMCC, leading global Forex broker and part of Alpari Group Limited, said in Dubai.
Iskandar urged constructors and real estate companies in the Gulf to consider developing and implementing hedging strategies to protect against the expected rise in price of materials such as steel, cement and concrete.
With a strong recovery in the property sector across the GCC, with infrastructure and construction projects recommencing and demand for building materials rising, companies are anticipating a hike in prices or even a shortage in construction materials as a result.
This could potentially spark stock piling of steel, such as rebar, cement and concrete. Qatar is one of the GCC countries that is expected to feel the pressure of rising costs, he said.
On the sidelines of the Arabian Business Forum in Dubai, Iskandar said: “A construction company will source materials from all over the world, and as a result, will be exposed to numerous currencies. Hedging is like having an insurance policy against rising prices. The employment of a hedging strategy allows companies to plan for potential future mid-transaction shifts in price hikes, by locking in the price of a product which will be delivered in the future. This means a company is able to lock in margins in advance, which offers a degree of stability to the company’s balance sheet.”
Hedging involves making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, through something like a futures contract.
A perfect hedge reduces your risk to nothing, except for the cost of the transaction fees. Hedging can be executed through several different tools, including forwards, futures, swaps, options and collars, but primarily forwards and futures.