Local steel producers seem to finally be competitive with international importers but it’s much to the chagrin of the international firms. In a recent bid for 22,000 metric tons of steel, local manufacturing companies greatly outbid international suppliers. Players in the industry say this is the new reality in Ethiopia as the steel business will likely mimic the concrete sector.
However, international importers have not taken this laying down. International suppliers have sold over 30 percent more steel than local manufacturers.
About a month ago, local steel importers and international suppliers, mainly from Turkey, wrote a letter to the Prime Minister and copied it to Getachew Assefa, head of the National Intelligence Agency, Mayor Diriba Kuma and Attorney General Getachew Ambaye, arguing that local producers were abusing the market by charging exorbitant prices. In the document, importers argued that the local manufacturers unfairly took advantage of the preferential support given by the government. “The local steel producers are offering an extraordinary price on the bids compared with the latest international market,” they claimed.
Historically there was some truth to the importers’ argument that they were offering low prices but they could not always put their money where their mouth was. For example, last February Turkish firm, Vilmeks Ic ve Dis Ticaret, offered USD 403 per ton for the purchase of about 44,000 metric tons of 14mm reinforcement bar which was in fact the lowest bid. However, when they were not able to follow through on their end of the bargain because importing steel at that price was not profitable for them, the government was forced to renew the bidding.
Recent bidding, for the purchase of reinforcement bars for the Army Foundation under the federal Public Procurement and Property Disposal Service (PPPDS) however, seems to indicate that claims by importers are baseless.
On September 9 domestic steel manufacturers offered a significantly lower price compared with competitive rates of international suppliers and importers for items that the Army Foundation wanted to buy via PPPDS, including 6 mm of wire rod and reinforcement bars measuring 8 to24 millimeters.
Perhaps more surprisingly the international suppliers through their, local agents, offered much higher bidding price, which appears to contrast with the assertions they made to the PM.
After a technical evaluation was completed in November 2015, PPPDS asked the selected companies to offer their revised prices to supply the 22,000 tons of reinforcement bar on Thursday September 8, 2016.
The bidding opened the next day for the products which companies are expected to deliver within three months.
Importing companies, Acemar International Ltd and Metal Market, offered USD 546.5 and USD 543.5 per metric ton respectively for the supply of eight different sizes of reinforcement bar, according to their financial proposal.
This comes to 22.25 birr and 22.15 birr per kilogram respectively.
The three local manufacturers that were accepted by the technical evaluation and invited to offer their revised prices were Steely RMI, C and E Brothers and East Steel.
All of them offered a much smaller amount than the importers for the items listed in the bid document. Steely RMI offered 16.65 birr per kilogram for six types of reinforcement bars (except for 8mm and 6 mm).
The other local manufacturer C and E Brothers offered 17.48 birr per kilogram for the same type of products that Steely offered.
East Steel, another local steel producer, owned by a Chinese investor offered 17.78 birr per kilogram for items from 12 to 24mm and 18.28 birr per kilogram for 10mm reinforcement bars. East Steel is also the only local manufacturer that offered a price quotation for 8mm reinforcement bars, which amounted to 18.89 birr per kilogram. After its offer East Steel was selected to supply the 8mm reinforcement bar because it offered a lower price than the other two companies who bid on the 8mm product.
Steely RMI had the lowest price on the bid for 6 different sizes of reinforcement bars, from 10mm to 24mm.
The two importers’ offer is much higher than the local manufacturers’ price tag on the same bid. The two foreign companies are also interested in supplying 8mm reinforcement bars.
The Turkish Metal Market won the bid to produce 6mm wire rods. It was one of two foreign suppliers to bid on that item. The other, Acemar offered 22.25 birr per kilogram for the 6mm wire rod, while Metal Market’s offer was 22.15 birr per kilogram.
The largest amount of the bid offered by Acemar was over USD 138 higher than the lowest offer by Steely RMI, which asked for USD 408 per ton. The difference between the lowest and the highest price offer was about 30 percent.
The price offer of the international bidders is unexpected because they criticized the local producers as having too expensive offers in their letter to the PM, according to the sector actors.
Experts said that without any additional privilege or preferential treatment the importers’ offer is very high compared with the local producers.
“Within six weeks after they complained to the Prime Minister they asked for a lot of money, which is against their own allegation,” the sector actors said.
“They have ridiculed the local producers for their high prices. However the offer of the importers is unexpected and it may backfire,” experts told Capital.
Experts in the sector say that the latest price tender is an indication of the reality of the steel market. “It shows that the importers’ argument made to the PM is baseless,” they said. Furthermore, they added, that the current bidding of the local companies is still significantly lower than the importers’ amount even if the government’s preferential policy is taken into account.
People in the steel industry argue that in the past couple of years importers have been unable to compete with local steel manufacturers, whose capacity is significantly growing. This has not always been the case, they remembered, as recently as two years ago foreign companies were able to offer lower prices on bids.
The situation has hindered the importers from competing in the local market.
In their letter, importers accused local producers of sky-rocketing the price of a kilogram of steel by 300 percent and increasing their profit margin on each kilo to 10 birr.
There was an assertion that the international steel market was USD 90 per metric ton or 2.1 birr per kg. However experts say the importer’s argument is not factual. They say if that was reality their companies would be able to compete in the latest bid. “It is an indication that the local scrap (steel production input) market is seven birr per kilogram,” steel sector actors explained. “So how could the reinforcement bar sell at two birr per kilogram,” they asked.
Officials at PPPDS said that it is too early to comment on the issue. “It is in the process so we cannot make any statement about the bid,” an official at PPPDS told Capital.
Experts stated that the latest price offers are also forcefully lower for the local manufacturers because the local market is experiencing a production surplus.
They remembered the cement market shrunk significantly when the capacity of local cement manufacturers became stronger a couple of years ago.
In the near future, like cement, the construction sector will be covered by domestic steel manufacturers. “The capacity of local manufacturers is increasing and other new steel industries will join the market,” experts said. “The local manufacturers will be forced to look to the export market like cement,” steel market analysts indicated.
Currently there 71 steel manufacturers in Ethiopia, of which 11 are deformed bar manufacturers, five of these companies have standardization certificates allowing them to compete in mega bids. These five factories have a production capacity of over 1.3 million metric tons but the demand is not more than 700,000 tons. Generally Ethiopia produces two million metric tons of all type of steel.
“If importers have a desire to be involved in the Ethiopian market it would be better to invest here,” one market actor said.