Construction set to be costlier as rod prices soar

Steel prices jumped 17 per cent in the last one month as millers hiked the rates in the wake of spiralling scrap prices in the international market, which will make the implementation of public construction projects and home building costlier.

The retail price of 60-grade MS (mild-steel) rod rose to Tk 64,000 per tonne, up from Tk 54,000 a month ago and Tk 61,500 during the corresponding period last year, data from state-run Trading Corporation of Bangladesh showed.

The price of steel scrap increased by $100 per tonne in international markets recently, said Manwar Hossain, president of the Bangladesh Steel Mill Owners Association.

"But suppliers can't deliver the steel scrap adequately due to the supply chain disruption. There is a shortage of scrap in the global market," he said. Hossain called the latest increase in the price of the rod as price correction.

MS rod price was Tk 60,000 per tonne on average before the pandemic. It declined to Tk 50,000 per tonne in the June-November period, when millers sold finished products for cash to stay afloat, Hossain said. 

According to him, the price of rod would increase further in the coming days because of the rise in the price of steel scrap.

Mir Nasir Hossain, a former president of the Federation of Bangladesh Chambers of Commerce and Industry, said the hike in the price of MS rod would put a negative impact on the infrastructure and construction sectors as steel is a key component.

"The implementation of the annual development programme will be affected significantly. Local construction companies will fall in trouble as procurement entities don't adjust prices for the projects with tenure less than 18 months," he said.

Similarly, procurement entities don't keep the provision of revising the budget of projects whose implementation tenure is more than 18 months, although the latest public procurement rules support it. The condition of price adjustment is, however, kept in case of the involvement of foreign companies, the entrepreneur said. 

Until October, millers ran mills at half of their production capacity because of lower demand and lower prices owing to the fallouts of the pandemic. Manufacturers are now facing a shortage of raw materials, although the peak season started in November.

As much as 90 per cent of the raw materials are imported from the US, Canada, Italy, the UK and Australia, which are yet to see a pickup in economic activities.

"In the last six months, the steel makers' losses amounted to around Tk 6,000 crore," said Hossain.

An unhealthy competition also prevailed in the domestic market as everybody wanted to make cash through the selling of stocks of finished products, he noted.

Md Shahidullah, secretary-general of the Bangladesh Steel Manufacturers Association and managing director of Metrocem Steel, said they are now importing scrap for around Tk 40,000 per tonne. It was Tk 32,000 just two months ago.

Manufacturers need to spend Tk 20,000 per tonne on average to produce finished products, taking the production cost to Tk 60,000.

"So, the price rose," he said.

The steel industry in Bangladesh is worth Tk 55,000 crore.

There are about 40 active manufacturers with a combined capacity to produce nine million tonnes of steel a year. Of them, Abul Khair Steel, GPH Steel, BSRM and KSRM meet more than half of the annual demand of eight million tonnes.

Tapan Sengupta, deputy managing director of BSRM, said the price would increase further as the price of steel scrap is on the rise.

According to him, scrap is selling at $480 per tonne now, but it was $270 in April.

"The price of steel scrap rose as China is importing steel whereas the country had exported finished products before the pandemic. If China imports the scrap, nobody can say how much the price will increase," he said.

He said manufacturers had to adjust the cost, causing the price to go up. However, the price is still at a tolerable level in Bangladesh compared to other countries.

The government's infrastructure projects account for 35-40 per cent of the total steel consumption in Bangladesh, up from 15 per cent a decade ago.

Kamal Mahmud, vice-president of the Real Estate & Housing Association of Bangladesh and managing director of Skiros Builders, said the hike in steel price would increase the cost of projects by 15 per cent.

"This will affect the construction industry. The sudden increase of rod price will affect not only the infrastructure and construction sectors, but also the development work in the country."

He alleged that steel and cement makers hike the price during the peak season every year.

"We have to buy rods despite the price increase."