Last month, the price of steel rebar in the domestic market crossed Rs200,000 per ton more than doubling in a matter of 12-14 months. Between Nov-20 to Nov-21, steel bars and sheet monthly price index grew 64 percent (side note: PBS should think about separating the index for steel rebars and steel sheets as the two serve different markets and have different demand dynamics) against the whole price index (WPI) increase of 27 percent. Cement prices during this period increased 16 percent. Steel was undoubtedly ahead of cement in terms of price bumps but cement manufacturers have not hit pause on price hikes any more than steel makers have. Cement makers have raised prices slowly but consistently. The average price for a 50-kg cement bag has risen 31 percent between Nov-20 to Mar-22—where many markets saw a 35-38 percent increase. In terms of value, the incremental is near Rs200 per bag for many markets during this period.
While builders and construction contracters have been crying fowl on fast surging building materials costs cautioning the government that manufacturers were colluding on prices under the government’s nose and serious action needed to be taken to “control” prices, there are very valid reason for price hikes. For cement, skyrocketing coal price increase (upwards of 200%), and an equally dramatic surge in freight rates (both in the aftermath of covid restrictions lifting and demand shooting up causing a flurry of supply chain disruptions) caused costs of production to increase substantially which had to be passed onto the consumers. Coal mix was diversified through procurement of less expensive coal from neigboring Afghanistan which to a great extent shielded the cost inflation. For steel, scrap prices have been increasing and maintaining their upward trajectory since covid broke loose (read: “Steel: Breaking the bubble”, Dec 24, 2021). That being the biggest raw material for rebar manufacturers caused end-user prices to spike too. More recently, the Russia-Ukraine has further exacerbated supply chain situation and with no signs of the war waning, the ripple effect on commodity prices is already apparent. Both countries are major supplier and producer of steel scrap. Price increases and shortages are expected to worsen in the coming months.
Here at home, it would be a valid argument to make—if one were to make it—that subsequent governments have provided duty protection (custom as well as regulatory duties. There are also anti dumping duties in place) on imported steel leaving consumers to rely on domestic steel which has become more and more expensive every month. As such, protection from imports give domestic players the power to keep raising prices. By that measure, the market is not open and free. But while acknowledging that, there isn’t much steel manufacturers can do here but raise price as much as they possible can to protect their businesses. Eventually, and as already evident, volumes will plummet. Demand for construction has already remained lackluster and it will get affected further as more of the cost burden is passed onto consumers. Manufacturers have to make that decision for themselves. It remains the government’s job (a task led by relevant government bodies and policymakers) to decide whether the market is competitive and free. That does not mean, the government comes in to “fix” prices but instead, ensure that producers are playing a fair and competitive game. If that means, revisting or reviewing the protectionary duties on steel and weighing the cost and benefit of protecting these industries, this column has advocated for that many times over the years.
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