A grim future for T&T’s construction sector as the price of steel has skyrocketed over the last few months.
And according to latest trends, prices are expected to continue to increase in the coming weeks and even months due to a severe shortage of scrap iron internationally.
The Wall Street Journal reported that scrap iron and steel prices have gone up 70 per cent in just a year.
And with several of Government’s mega projects carded to be onstream this year this means that they may either be stalled or more of taxpayers’ money will have to forked out to fund these initiatives to ensure they come to fruition, says head of the Contractors’ Association Glenn Mahabirsingh.
He’s advising that contractors hold discussions with their clients to pave a way forward.
In giving a breakdown of the prices, Mahabirsingh cited that last November the general retail price for reinforcement rods also called rebar was $4,200 per tonne.
By mid-January 2021, the retail price was $8,000 per tonne, representing a 90 per cent increase.
And based on international prices, Mahabirsingh said this price is likely to be around $10,000 per tonne by early February.
“For the ordinary man this means that a typical three bedroom house will generally utilise approximately five tonnes of rebar. If you need to purchase steel at the current prices your house would cost you around $19,000 to $20,000 more,” Mahabirsingh said.
He noted that such rods is a critical component to construction as it is used to reinforce concrete structures such as columns and beams.
Constrained supply and a simultaneous pick-up in demand across a broad range of steel-consuming sectors explain this pricing behaviour.
The World Steel Association said that global steel demand growth in 2021 will amount to 4.1 per cent (from 1,725 million tonnes of finished products in 2020, to 1,795 million tonnes in 2021).
There is also an increase in prices of structural steel such as “I beams.”
Mahabirsingh said from December 2020 to mid-January this year the prices moved from $3.20 per pound to $4 per pound, an increase of 80 cents which is 25 per cent increase.
“The structural side of the industry is used to fabricate structural steel buildings which is the alternative to reinforced concrete buildings.
“In July 2020 the price was $2.90 per pound,” Mahabirsingh added.
Expressing concern about the increases, Mahabirsingh said there’s no doubt that projects will be impacted as both contractors and clients would have already budgeted.
“We are very concerned. The last four years the steel prices would have been very stable but no contractor in putting together his bid price or tender would have anticipated this drastic increase.
“Further, with the competitive nature of the business people would have sharpened their pencils and cut their margins and operating costs to secure work. These prices are now very difficult for any contractor to absorb,” Mahabirsingh explained.
He said the benchmark price for cold-rolled pre-painted steel reached a new record high last month, surpassing the previous high in 2008, by 15 per cent.
He noted that a typical three bedroom home with an average roof area of 3,000 square feet would have cost approx $150,000 (sheeting, gutters, soffits and framing) in early 2020.
In 2021 that same roof will cost $200,000, that’s an increase of
approximately 30 per cent.
“As fabricators and manufacturers are well aware, steel is in tight supply. Steel mills response to the coronavirus was to shutdown furnaces in early 2020, and they have been in no rush to bring it all back online despite the demand for steel remaining high.
“Globally, demand among the steel-consuming industries is surprisingly robust, unlike the service sector of the economy, which is disproportionately impacted by COVID-19,” Mahabirsingh explained, adding that currently, most roofing manufacturers’ inventories are well below normal levels.
He said as long as demand continues to outstrip supply, steel prices will remain elevated, noting that several global mills have expansions in the works.
However, that is not expected to come on stream until late 2021 and once supply and demand begin to approach some sort of equilibrium, steel prices will remain high.
Other contributors of high cost
Added to the global volatility in the steel market local manufacturers continue to face challenges in obtaining foreign exchange.
Daniel Ramoutarsingh of Trinrico Steel and Wire Products Ltd explained that steel like oil is bought and sold in US currency, adding that when a booking with a mill is made it is an advanced payment subject to shipping.
“Most people would procure through traders. There are traders in T&T and there are international traders who sell our market and this is how you would get credit on steel otherwise when you book you have to pay 100 per cent upfront to the mill,” Ramoutarsingh said.
He noted that the pandemic has resulted in an international construction boom as countries desperately seek to create jobs and economic stimulation.
Apart from scrap iron, steel is also made from iron ore, the biggest supplier being Brazil.
In 2019 Brazilian mining company Vale SA halt production at ten sites in Minas Gerais state following a deadly dam disaster has affected deliveries of iron ore pellets to clients,
Ramoutarsingh also noted that just last week China removed its import duty from steel, a clear sign that it plans to ramp-up its consumption.
“What happening is China is not exporting so Turkey and Europe are exporting to traditional Chinese export markets which is Asia. So you have a situation where there is a strong global demand and there is a shortage of scrap and iron ore,” he said.
He said his business has witnessed increased prices ranging from between 75 to 90 per cent, noting that the problem is intensified by overbooked mills.
“If you order steel this month they normally produce it for you the following month but the order books are filled four months down the road.
“So even if you order today, cargo readiness will be all the way in April. In addition, there are logistical problems world-wide because of the disruption in freight due to COVID-19,” Ramoutarsingh said.
He added that the freight from China for instance which used to be US$2400 to US$2500 per container is now priced at US$10,500 per container.
“We have raw materials that was supposed to be shipped in December out of Turkey and all the material are sitting on the port up to today awaiting vessel. There is no answer as to when our order will be shipped,” Ramoutarsingh said, adding that his company imports from Europe, Turkey and in some instances China.
He said his company booked orders with international mills in November last year but these could not be fulfilled due to increased raw material prices.
“They contacted us in December last year telling us this. They told us if they wanted us to be supplied in February we would have to pay 15 to 20 per cent addition on our order which was already confirmed,” Ramoutarsingh said.
He explained if the original price was US $1000 per tonne that order would now cost around US $1150 per tonne.
The scrap metal market also coped with abrupt interruptions, and those changes consequently moved through the supply chain, Ramoutarsingh said.
Governments in some parts of the world—recognizing the value and current scarcity of scrap—began to impose or propose banning the export of scrap metals.
The United Arab Emirates placed such a ban on ferrous scrap in mid-May 2020, and South Africa banned the export of both ferrous and most non-ferrous scrap metals starting in mid-July, last year.
In its December issue, Recycling Today picked up that theme of exports affecting scrap prices.
“New mills coming on-line in non-China developing countries are primarily producing steel via Electric Arc Furnaces. Steel scrap is their primary feedstock. Considering that these countries also have higher economic growth rates than the US adds to their demand for steel scrap. The key takeaway is steel scrap demand is growing faster outside of the US,” it noted.
Ramoutarsingh predicted that soaring prices will not only negatively affect mega projects but also home-owners.
“People cannot travel,they cannot go out so they are trying to make their homes more comfortable. There is a high level of home builders to the hardware stores but with the historic increase in the price of steel they too will be affected,” he added.
Bhagwansingh’s group marketing manager Baliram John said it was a bit too early to determine how the increased prices will affect sales.
He said January was usually a slow month but by next month the hardware will have a better indication.
“But definitely we will see the effects but we are not sure what is going on right now,” John noted.