Rod prices surge for costlier raw materials
The price of mild steel (MS) rods has increased by Tk 1,500 per tonne in Bangladesh in the past month because of the rising cost of raw materials globally, making building houses and implementing infrastructure projects costlier.
The spike in the price came even though the source tax was slashed in the budget for fiscal 2021-22.
Manufacturers blame the increasing cost of melting scrap in the international market for the price hike in the local market. So, the cost of building private homes and implementing infrastructures and development projects will not decline.
The retail price of 60-grade MS rod rose to Tk 75,000 per tonne, up from Tk 73,500 per tonne one month ago, data from the state-run Trading Corporation of Bangladesh showed.
Rod prices jumped 38 per cent in the last year as millers were compelled to hike the rates in the wake of spiralling scrap prices in the global market.
A year ago, 60-grade MS rods were sold for Tk 54,000 per tonne after the demand went down to almost zero due to the coronavirus pandemic, putting the brakes on the construction sector.
"The impact of the increasing price of melting scrap in the global market will affect the local market in a short time. If the situation remains unchanged, the price of MS rods could hit Tk 80,000 per tonne," said Tapan Sengupta, deputy managing director of BSRM, the largest steelmaker in Bangladesh.
"This would be a burden for infrastructure and construction projects," he added.
The price of melting scrap, which was $300 to $350 per tonne last October, has risen to $590 per tonne, prompting several countries, including India, to cut the tariffs on raw material imports.
Around 70 per cent to 85 per cent of the melting scrap used by the domestic steel industry has to be imported, while the rest is produced locally.
The scrap is imported from the US, Canada, Australia, South Korea, and European countries.
"The pandemic has squeezed the supply from these countries because the demand in their economies has gone up," said Md Shahidullah, secretary-general of the Bangladesh Steel Manufacturers Association and managing director of Metrocem Steel.
He expressed concerns about the rising trend of scrap steel prices globally as it could affect local development.
China used to produce iron ore products from its own raw materials until 2006. Now, the country is importing melting scrap, and it has had a significant impact on the international market.
So, entrepreneurs in the sector think that if the customs duty, advance income tax (AIT) and value-added tax (VAT) on imports are not reduced, the raw materials crisis will lead to an abnormal rise in prices.
According to Shahidullah, millers fear that the continuous rise in scrap prices could bring the local construction sector to a standstill.
At present, the import duty on melting scrap is Tk 1,500 per tonne, while the AIT at the import stage is Tk 500 per tonne.
Although the 4 per cent AIT has been withdrawn at the import stage for FY22, the fiscal measure is not sufficient to bring down the price of rods.
In order to reduce the retail price, it is necessary to slash the import duty on raw materials from Tk 1,500 to Tk 500 per tonne, the AIT on imports from Tk 500 to Tk 300, and the VAT at the sales stage from Tk 2,000 to Tk 500, Shahidullah said.
Ferroalloys, the main chemical used for rod production, cost between $600 and $850 per tonne a year ago. The price has spurted to $1,400 to $1,450 per tonne now.
Manufacturers say container ship crew have to maintain a 14-day quarantine to drop goods off anywhere in the world, leading to a supply shortage of raw materials and doubling of container fares.
BSRM's Sengupta assumes that suppliers will further increase their container fares in July. In this case, the price of rods is likely to rise further if the government does not reduce the tariffs.
Shahriar Jahan Rahat, deputy managing director of KSRM Group, said the rising prices of raw materials have led to a downturn in the construction industry as a whole.
He urged the government to reduce the VAT, tax and duty imposed on steel raw materials.
"Otherwise, the construction sector and infrastructure development will face challenges, and about two crore people involved in the sector will be affected."
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