KARACHI: As the pace of activity in the construction sector picks up under the Naya Pakistan Housing Scheme, steel bar makers and builders/developers find themselves at loggerheads, blaming each for rising steel bar prices from November to mid-December.
Builders are alleging “cartelisation” on the part of steel producers and urging for an inquiry while steel producers allege price gouging on the part of builders and calling for greater regulation of construction activities.
Besides, “a cat and mouse” game has been going on between the cement makers and the government over cement prices. The government has been reportedly issuing a soft warning to the cement markers not to think about any price hike in cement as it would escalate production cost of various projects.
Talking to Dawn, Chairman Association of Builders and Developers of Pakistan (ABAD) Fayyaz Ilyas said steel bar prices had swelled by Rs10,000 per tonne all over the country to Rs122,000-123,000 per tonne from November, despite low cost of import on rising rupee value against the dollar. One dollar now sells at Rs159-160 in the interbank market versus Rs168.44 in last week of August.
Terming the price hike as “conspiracy to damage construction industry, especially against the Prime Minister’s Naya Pakistan Housing Scheme”, he demanded the government to take strict action against what he called “the steel manufacturers’ cartel.”
Refuting the claim Secretary General, Pakistan Association of Large Steel Producers (PALSP) Syed Wajid Bukhari says the price of steel bar all over the country has jumped by Rs7,000-8,000 per tonne from November till December 14 due to “rising raw material prices in world market.”
Fayyaz said that steel accounts for 40pc of total material used in a high rise building while the share of steel in residential units is 20-25pc. The increase of Rs 10,000 per tonne in steel bar has caused 7.5pc hike in construction cost of a house.
“If steel cartel is not tamed immediately, the PM’s dream to provide five million low cost houses to people will never come true,” he warned urging the Competition Commission of Pakistan (CCP) to check cartelisation in the steel sector.
Wajid Bukhari had a different view, however. “During the last two years the steel sector absorbed the impact of increase of inputs without passing it on to the end consumer” he argues. “However, it is becoming extremely difficult to continue like this.”
He urged the government to remove all duties on the raw material to offset the price increase, adding that steel imports have crossed $400 per tonne compared to $300 in August.
He said the domestic steel bar prices have dropped over the past two years by 8pc in dollar terms from $806 in 2018 to $746 per tonne today. “The reason steel prices have increased since 2018 in rupee terms is primarily due to 45pc rupee depreciation against the dollar, which resulted in increased prices of imported raw materials” he adds.
“The PM’s office should undertake an analysis to see what profit margins the builders and developers are working on and whether some further regulation in this area will help reduce housing prices,” Wajid said.
Since 2018, he said electricity costs have risen by 56pc followed by 116pc in the cost of gas between January 2018 and early 2020. In the same period, interest rates had risen from 6pc to 13pc thus increasing financial cost of the industry, he added.
The steel industry did not pass through a large portion of these cost increases but reduced profit margins to continue supplying steel bars at a competitive price point to the construction sector he argues. “This is evident from profit margins of steel bar manufacturers that shrunk from approximately 8pc to 3pc from 2018 to 2020” he says.
In cement, sources said the Ministry of Industries has been engaged with All Pakistan Cement Manufacturers Association (APCMA) verbally warning cement makers not to increase prices and revisit the price disparity between South and North zones as cement price is higher in South by Rs50-80 per bag compared with the North region.
Sources said manufacturers in the North have raised prices by Rs25-40 per kg six months ago while prices in Southern region did not move up. Nobody in the cement sector was willing to speak for attribution given the heightened government scrutiny that the sector is under these days.
The CCP raided offices of top office bearers of APCMA last month to check cartelisation, anti-competitive practices by the manufacturers and price hike in April.
A cement maker told Dawn that the price of coal now stands at $95-100 per tonne as compared to $55-60 per tonne (C&F Karachi) two months ago. “Coal is used as a fuel to burn raw material while some mills are using coal for power generation as grid electricity has become costlier by 40 per cent in the last one year” he said.
Published in Dawn, December 15th, 2020
