Unbridled price hike of construction materials barring development

Golam Mostafa Jibon:Unbridled price hike of different construction materials particularly rod and cement has caused of serious obstruction to the country’s development activities during the corona pandemic.
Contractors said, they cannot adjust with the previous contracts of the government over the development works as the rates of different construction materials continue to skyrocket. Consequently, the pace of works is decreasing day by day. Private construction is also stumbling. The prices of most construction materials have more than doubled. Public-private infrastructure construction work has almost stopped across the country.
At the moment, there is no momentum in infrastructure development of any project except the mega projects of the government.
Such standstill situation has been created due to unbridled rise in the prices of main construction materials-rods, cement and bricks for over the year.
Though, the government has withdrawn advance tax on the raw materials of steel and cement industries in the current budget for FY 2021-22 to keep the prices stable, the situation is still unstable.
In addition, advance tax of some raw materials used in the manufacture of iron products, scrap vessels and PVC and ethanol glycol used in the production of PET resins has been exempted. But, a month after the implementation of the budget, the prices of these construction materials have not come down in the market.
According to the investigation, at least 2,000 different types of development projects including small and medium are running by the government. On the other hand, work is underway to build 100 economic zones in the country through public-private joint ventures.
Apart from this, there are thousands of projects in the hands of those involved in the sector to meet the demand of housing or real estate projects. Work is also being done to build and expand industries in various productive sectors. Apart from this, there are initiatives to build several lakh houses from town to village.
Thus, thousands of tons of rods, cement, bricks and stones are being required for the ongoing development works at different stages. But the long-term effects of corona at home and abroad, and the frequent lockdowns have pushed the prices of these materials to the skies, pulling the reins of overall development.
In this situation, the Padma Bridge, Rooppur Nuclear Power Plant, Metrorail and other projects, which are on the government’s priority list, have come to a standstill. Most of the contractors have been facing difficulty as there is no opportunity to adjust the additional cost due to excessive cost of materials. The pace of work of those, who are being forced to continue working under the previous contract due to urgent consideration, is also very slow and there are also questions about the quality of work.
On the other hand, the construction of houses on the initiative of individuals and many ongoing development works of entrepreneurs have also come to a halt in the hope of reducing prices.
According to the Real Estate and Housing Association of Bangladesh (REHAB), the cost of building infrastructure in the country has risen by at least 20 percent in the first seven months of this year alone.
On the other hand, the Bangladesh Association of Construction Industry (BACI), an association of contractors engaged in various development projects in the country, said that, according to the engineering rules, 38 to 42 percent rod, 35 to 45 percent brick or stone and 18-22 percent cement are required. In other words, these materials cover at least 90 percent of any infrastructure. Lack of any of these can raise questions about the sustainability and quality of the infrastructure.
From December to this time last year, the price of rod has increased by 32 to 35 percent, stone by 35 percent, cement by 15 percent and brick by 25-30 percent.
Market situation:
Reviewing the current market situation, it has been seen that the price of almost all types of rods has gone up to Tk 18,000 to Tk 22,000 per ton. The best quality 75 grade MS (Mild Steel) rod is now being sold between Tk 72,500 and Tk 74,500. In November last year, this grade of rod was sold between Tk 52,000 and Tk 54,000.
At present, 60 grade rods are being sold for between Tk 66,000 and Tk 67,000. In November last year, the price was between Tk 42,000 and Tk 44,000. Ordinary 40 grade MS rods are being sold at a minimum of Tk 63,500 to Tk 64,000 per ton. The same rod price was Tk 40,000 last November.
Besides, Bangla rod (without grade) is being sold at Tk 61,500. In November last year, the price was only Tk 38,000. The lowest price of cement in the market now is between Tk 410 and Tk 480 per bag. At this time, the price of cement of different brands has increased by Tk 30 to Tk 50 per bag.
The price of stone has gone up by Tk 400 to Tk 600 per ton and the price of bricks has gone up from Tk 1,000 to Tk 1,500 per ton.
Demand vs. Supply:
At present, there are about 400 steel mills in the country. The annual production capacity of these factories is about 8 million tons. Besides, the amount of internal steel used is 75 lakh tons. There are 38 cement factories. Of them, some 34 are in production. The annual production capacity of all the companies is about 40 million tons. But the demand in the market is less than the capacity of the factories. At present, the companies are limited to the production of 2.40 crore tons to 3 crore tons according to the demand.
According to the Bureau of Mineral Resources Development (BMD), due to development activities, the demand for stone is now creating 70-80 lakh tons every year. 83.4 percent of it is import dependent. Only 6.6 percent is met from domestic production. In other words, on an average 60 lakh to 70 lakh tons of stone has to be imported.
According to the Bangladesh Brick Manufacturers’ Association, the demand for bricks in the country is around 40 million pieces per day. Across the country, bricks are being produced from more than 6,000 small and large size modern and traditional brick kilns. Of them, 30 to 35 percent are used in government projects.
Why the crisis over prices?
Local producers and marketers of these materials are blaming the uncontrolled price hike of raw materials in the international market. According to industry insiders, the country has a supply of almost all materials against demand. However, the country has to depend on the import of raw materials throughout the year for the production of these materials.
Sheikh Masudul Alam Masud, Chairman of the Steel Manufacturers Association (BSMA) in Bangladesh said that, “The raw materials required for steel and rods are almost 100 percent dependent on imports. But, the price of this raw material has gone up abnormally in the international market due to the coronation. The international market price of scrap per ton was between $ 270 and $ 350 in November-December last year. Now it has risen to $ 560 to $ 570. The market price of the billet was between $ 750 and $800. Now it has exceeded $1,350.
Earlier, the cost of importing a container of melting metal in the country was $1,000 to $1,200. Now, the cost for importing the same amount of melting metal has gone up to $2,800. Prices have more than doubled. Similarly, the price of chemicals has also gone up. As the price increased in the international market, the country also had to adjust its price.
Bangladesh Cement Manufacturers Association (BCMA) President and Vice-Chairman of Crown Cement Alamgir Kabir said, “About 75 percent of clinker, the raw material for cement production in the country is import dependant. Along with the increase in the price of this clinker in the international market, the cost of shipping in the country has also gone up.”
It is known that, earlier it used to cost $22 to $24 per ton of clinker to transport from Indonesia or Vietnam or even the Middle East. Now, it has to be counted from $28 to $30. In addition, the CFR price of per ton of clinker is $ 60 to $ 65, which was $ 55 to $ 56 in November last year.
Mizanur Rahman Babul, President of the Bangladesh Brick Manufacturers Owners Association said, coal was the main raw material for burning bricks. Around 65 to 70 percent of it is being imported. Prices are higher in exporting countries. It costs more to bring. Workers’ wages have also increased. This has affected the price of bricks. It is learned that, the price of coal has increased to Tk 14,000 per ton. Earlier, the price was between Tk 7,000 to Tk 8,000. The same information was given by the stone importers. The country has to import more than 90 percent of the required stones. Demand for stone has increased in the infrastructural development activities of various government institutions including the Padma Bridge. Exporting countries have increased the price of stone per ton. The import price of stone is not more than $6 per ton. The cost of transportation and loading and unloading is more than the LC price of the stone. In India, the nearest exporter, the price of stone has gone up from Tk 350 to Tk 450 per ton.
Complexities in the supply chain:
The country has been in lockdown for several times. The situation was similar in the material exporting countries. As a result, production has been disrupted everywhere. Due to this, the export has decreased.
On the other hand, China, the world’s largest producer, used to import very little melting scrap. They were producing steel with their own mineral iron. Now China is leaning towards importing melting scrap for various reasons. As a result, a large portion of the world’s scrap metal is now going there. The same is happening in the case of cement raw material clinker, stone and coal. Imports are also being delayed. In addition to disrupting production in the country, complications have also been created in the supply chain. The market price of materials has become more uncontrollable as the lockdown has started in stages.
Losses in the housing sector:
REHAB President Alamgir Shamsul Alamin said, “The number of member of the organization is about 1,151. On an average, there is a demand for the same amount of projects. But now, no one is daring to take up any new project for fear of additional cost. Everyone is monitoring the situation and moving forward on a slow-moving policy. But now, it is urgent for everyone to start a new project.”
Explaining the reason for this, he said that, at the beginning of 2020, about 6,000 ready-made flats and apartments were unsold in the hands of real estate traders. In the last one year, 5,518 have been sold from him. In other words, ready-made flats in the housing sector have come down to the lowest level of recall. Due to various realities, the interest in buying middle class flats in the country has increased manifold. They want to get small flats at affordable prices according to capacity. As a result, it is necessary to start construction of several thousand flats now. He has more than 15,00 flat booking orders. But due to the high cost of construction materials, it is not possible to start work on any project now. Similarly, construction of large scale flats is not going to start.
The REHAB President said, “If the prices of materials are not curbed now, the dream of middle class’s own housing will remain elusive. This will have a negative impact on the housing sector.”
Slow pace in government projects:
Government development contractors are now in a worse situation than real estate traders.
BACI President Engineer SM Khorshed Alam said, “The government-funded projects run on a fixed price agreement. There is also a fixed time for performing the work. But as the prices of construction materials have gone out of control in the country, nothing has been going well for almost a year.”
He also said, “The ongoing work of any government project is not going to be taken forward. Most of the projects have already been stopped. Although, some work is being carried out due to urgent reasons, the cost of the project is not going to be kept within the previous limits due to the increased cost of materials. The contractors are afraid of losses.” According to the rate of increase in the price of materials, additional cost is not going to be recovered from the employer. As a result, the contractors are now struggling to adjust the cost by 20 percent more than the previously agreed contract price.
In this situation, the contracted contractors are not able to close down the project for fear of tarnishing their reputation, nor are they able to continue the work with losses. As a result, the implementation of the project and the overall development of the country are being delayed. Concerns have also been raised about the quality of development work. If prices are not kept under control, this crisis will become more pronounced in the future, which will have a direct and indirect negative impact on the overall economy.
BACI President Engineer SM Khorshed Alam claimed that government projects bring benefits to the doorsteps of the people. Therefore, it needs to be implemented within the stipulated time as well as quality implementation. In order to maintain its continuity, it is necessary to come out of the practice of fixed price contract in the implementation of the project. If it is still in force, it will be necessary to adjust the prices of the abnormally increased materials and issue variation bills by issuing circulars from time to time. Similarly, the delay in implementation of the project cannot be reduced unless the price adjustment clause of all future tenders is not included as per the provisions of PPR.