Surprise spike in rebar price could punch short term construction projects
People who work in construction are expressing concern about escalating project costs due to the sudden and significant price increase of rebar on the local market over the past few weeks.
Experts in the steel industry say rebar prices have risen dramatically due to the volatility of the international market which has, in turn, caused local prices to rise.
Buyers and contractors told Capital that the price of rebar has escalated and the product has been very scarce.
“My steel suppliers told me that the local product is not adequately available and the price of the imported rebar is skyrocketing,” one of the contractors told Capital.
The government is a major client of private construction companies who are worried about rising project prices.
“The government has a settlement or compensation mechanism when price escalation occurs, in addition to the original contract price,” contractors said.
“However, the government scheme does not consider projects that run for 18 or fewer months,” they explained.
The contractors expressed their concern that the current price increase is sudden and unexpected so short term projects will be affected unless rebar prices go down.
“Don’t expect the adjustments from the clients in the private sector but the issue will be solved through discussion and negotiations this is an alarming incident,” a contractor that requested anonymity explained.
One of the major local rebar manufacturing leaders told Capital that the local rebar production capacity is almost double the demand since the local rebar manufacturing industry has been engaged in massive expansion and some new manufacturers have also joined the sector in recent years.
He argued against the absence of local rebar from the market. “The market is still accessing the product from local manufacturers,” the steel industry official said.
But he said that lack of hard currency is the major bottleneck for the sector that demands huge working capital to make the industries active and import steel billet (raw material).
“Due to lack of foreign currency the sector is not working at its full capacity,” he said.
“The rebar manufacturers received hard currency in March after nine months for the first time to import the raw material, but since then there has been no other hard currency approved for the import of billet,” a steel rebar producer who asked not to be mentioned told Capital.
Even though the LC approval is not going as well as the industries would like the local product is still available on the market.
But they said that the current price increase is directly related to the international situation.
Solomon Mulugeta, General Manager of the Ethiopian Association of Basic Metals and Engineering Industries (EABMEI), agrees with the local manufacturers.
He told Capital that in the past few months the price of steel in the international market has hiked.
“The price rise of oil had been one of the factors in the price increase of steel but the current case is not related to oil since the price of oil has not gone up lately,” Solomon added.
An expert in the sector said that the price of steel on the international market has gone up a lot because of construction booms in major steel exporting countries.
For instance China was known for pumping a huge amount of steel on the market which made the price go down. But in the current case the country has already halted exports due to a hike in local demand and now has even begun importing the product.
The expert said that other major producer, Russia, is also going through a construction boom so steel is in short supply there as well. According to experts, the price of steel has reached up to USD 600 per ton in the past few months. “It was USD 380 to 400 per ton before then,” they added.
The steel industry in Ethiopia has registered significant growth in the past couple of years since because of the construction boom. But, like cement, the current production is now less than demand.
Solomon said that from the total 74 members of his association 15 are engaged in the construction industry and five of them are very huge rebar producers.
“Other huge manufacturers are expected to join the market in the near future,” he added.
The current total capacity of rebar production in the country is more than two million metric tons per year, while the local demand is less than one million metric tons.
Since the government understood the production capacity it has taken several measures including state owned projects to use locally produced rebar. Further awareness creation work has been undertaken by the association and the stakeholders in the government office to make the procurement easier. But some bid documents and procedures have to be readjusted to support local production, experts in the sector said.