Page 31 - IBT Full Pdf

Construction Industry
By Farhat Chowdhury Zishan December 2021 Bangladesh Steel Manufacturers Association
DREAMS Ispat, said that steel prices are rising in the
(BSMA) and Managing Director of Metrocem
local market as a of the global price hike of
scraps.
Insiders in the real estate industry estimate
that the increase in mild steel (MS) prices will
ON HALT raise the cost of building apartments and
homes by 10% to 15%. It will also have an
impact on the construction prices of several big
and small projects, such as bridges, culverts,
and flyovers, they added. A 60-grade MS steel
rod was selling for Tk 73,000-75,000 per ton at
several markets in the capital, while a 40-grade
MS steel rod was selling for Tk 58,000-60,000
per ton. Dealers and sellers are concerned that
prices would continue to rise, with the per ton
price of 60-grade MS steel reaching Tk 80,000.
Steel prices in the country have risen by 38% in
the previous year, according to market insiders,
who are concerned that the manufacturing
costs of public infrastructure projects and
private residential buildings would drive prices
even higher. Due to limited availability
resulting from a drop in production in Japan
and Europe during the pandemic, steel
entrepreneurs say the price of scrap metals has
risen dramatically in the worldwide market.
However, as most economies returned to
normal following widespread vaccination
efforts, demand for scrap and steel increased.
The price of bricks has also drastically
increased within this time period. The price of
one piece of locally produced brick has gone up
by Tk 1.5, auto bricks by Tk 2.5, ceramic bricks
by Tk 5, and concrete bricks by Tk 8. The
president of the Real Estate and Housing
Association of Bangladesh (REHAB), Alamgir
Rising building material prices Shamsul Alamin, stated that prices of
practically all sorts of construction materials
HINDER real estate recovery had increased by 20% to 30% in the last six
months. Evidently, the adverse effects of such
price hikes are now being borne by the
Steel prices in Bangladesh are continuing to rise customers. Mr. Ratul, who was about to finally
as the price of imported raw materials rises in
Although many have saved years of their income to buy the global market. The growing cost of steel, buy a flat in Mohammadpur in February last
a piece of land in the city, the global pandemic has according to real estate entrepreneurs, is having year, had to face such an unwanted
brought many such dreams to a screeching halt. Due to a direct influence on their industry, driving up consequence. As soon as the global pandemic
global supply chain disruptions, the prices of building building expenses. Imported melted scrap, which hit, the development company handed him a
raw materials have risen dramatically in the past couple is the primary raw material for steel, is currently notice mentioning that he needs to pay an
of years. Buyers are now being forced to purchase at worth around $550-$590 per ton, up from additional Tk. 2 lakh for the increased prices of
higher prices to cover the increased costs. Prices of $490-$500 per ton just a few months earlier and the raw materials. As per Rehab data, the
everything – starting from cement, rods to even floor tiles $300-$350 per ton in October of last year. number of under-construction flats in Dhaka
have continued to rise since last November. Let us take a Furthermore, the price of iron retrieved from ship and Chittagong is over 50,000 and all the
detailed look into how these price hikes are affecting the breaking has risen, further increasing the price of owners now have to pay extra money for their
real estate industry of Bangladesh. steel, according to industry sources. Md homes. The prices of these flats, depending on
Shahidullah, General Secretary of the size and materials used, have increased by
10%-12%.
30
THE GLOBAL PERSPECTIVE
Such scenarios are not just being observed in Bangladesh; but
in all parts of the globe. Despite recent price reductions in raw
materials such as lumber and steel, mainly in the United
States, European construction material firms continue to face
greater expenses. As a result, many European manufacturers
expect their output prices to rise even further. According to a
European Commission poll conducted in July, 40% of concrete,
cement, and brick suppliers anticipated to increase their costs
even more. The percentage of enterprises expecting to boost
the price of lumber and metal is considerably greater.
Nonetheless, it appears that the peak for these products has
passed, but labor constraints and the uncertainty of the
adjustments.
pandemic could prolong price stabilization or downward
GLOBALLY,
CONTRACTORS ARE
EXPERIENCING A
DECREASE IN THEIR
OVERALL MARGINS
The cost of construction materials
has increased, putting pressure on
profit margins. Because profit
margins in the construction industry
are typically between 2 and 4%, this
can quickly lead to loss-making
projects. Generally speaking, there is
a positive correlation between input INVENTORIES MUST BE improvement in inventory for these construction supplies. In
costs for building materials and IMPROVED fact, the opposite is true. In July, a record number of building
output prices of construction material suppliers complained that the value of their finished
projects. Contractor output prices Suppliers must perceive an improvement in product inventory was (too) low. As a result, before the costs
climbed faster than input prices their inventory before they consider cutting of these building materials stabilize, let alone decline, we
from 2018 to the end of 2020, which sales prices because a growth in their stock need to see some stock improvement. Taking into account the
might have resulted in bigger profits. However, due to rising raises competition and puts lower pressure six to nine-month price delay, we are not expecting concrete
construction material costs, input prices are swiftly catching up,
on pricing. For example, during the outset of
with the largest increase in the first quarter of 2021, since the financial crisis, building material and cement prices to fall before the summer of 2022.
2004, putting pressure on margins. suppliers began to detect an increase in THE PRICE OF TIMBER WILL
their inventories in April 2007, but it wasn't
DECREASE SOONER RATHER THAN
TIMBER AND STEEL PRICES ARE until August 2008 that a growing number of
enterprises indicated that they expected to LATER
MORE SENSITIVE THAN CONCRETE, lower their prices. Timber and steel prices have a shorter response times. When
CEMENT, AND BRICK PRICES building suppliers of these materials observe an improvement
CONCRETE AND CEMENT in their inventory, they almost immediately predict fewer price
There is a global market for steel and lumber, with a large hikes. The improvement of stocks and price fluctuations are
number of buyers and sellers. This makes these marketplaces COSTS WILL REMAIN separated by only one or two months. Furthermore, value
more competitive and transparent, resulting in a more direct HIGH UNTIL AT LEAST chains must first be established. After severely limiting it
pass-through of raw material price fluctuations in the value during the COVID-19 crisis, this could still take some time. For
chain. Concrete, cement, and brick markets, on the other hand, MID-2022 example, transportation remains a major issue. We predict
are huge and heavy, making transportation difficult and According to correlation studies, sales prices lumber and steel shortages to persist until at least early 2022
expensive. As a result, these markets become less competitive. of building materials such as concrete, as a result of value chain disruptions. As a result, elevated
As a result, procurement price changes are passed on more bricks, and cement react to changes in the costs for lumber and steel for construction projects are
slowly. This could also explain why steel and timber costs appraisal of their stocks six to nine months expected to persist for the next few quarters before leveling
have risen faster than others. later. However, we are currently seeing no
off.