A grim fu­ture for T&T’s con­struc­tion sec­tor as the price of steel has sky­rock­et­ed over the last few months.

And ac­cord­ing to lat­est trends, prices are ex­pect­ed to con­tin­ue to in­crease in the com­ing weeks and even months due to a se­vere short­age of scrap iron in­ter­na­tion­al­ly.

The Wall Street Jour­nal re­port­ed that scrap iron and steel prices have gone up 70 per cent in just a year.

And with sev­er­al of Gov­ern­ment’s mega projects card­ed to be on­stream this year this means that they may ei­ther be stalled or more of tax­pay­ers’ mon­ey will have to forked out to fund these ini­tia­tives to en­sure they come to fruition, says head of the Con­trac­tors’ As­so­ci­a­tion Glenn Ma­habirs­ingh.

He’s ad­vis­ing that con­trac­tors hold dis­cus­sions with their clients to pave a way for­ward.

In giv­ing a break­down of the prices, Ma­habirs­ingh cit­ed that last No­vem­ber the gen­er­al re­tail price for re­in­force­ment rods al­so called re­bar was $4,200 per tonne.

By mid-Jan­u­ary 2021, the re­tail price was $8,000 per tonne, rep­re­sent­ing a 90 per cent in­crease.

And based on in­ter­na­tion­al prices, Ma­habirs­ingh said this price is like­ly to be around $10,000 per tonne by ear­ly Feb­ru­ary.

“For the or­di­nary man this means that a typ­i­cal three bed­room house will gen­er­al­ly utilise ap­prox­i­mate­ly five tonnes of re­bar. If you need to pur­chase steel at the cur­rent prices your house would cost you around $19,000 to $20,000 more,” Ma­habirs­ingh said.

He not­ed that such rods is a crit­i­cal com­po­nent to con­struc­tion as it is used to re­in­force con­crete struc­tures such as columns and beams.

Con­strained sup­ply and a si­mul­ta­ne­ous pick-up in de­mand across a broad range of steel-con­sum­ing sec­tors ex­plain this pric­ing be­hav­iour.

The World Steel As­so­ci­a­tion said that glob­al steel de­mand growth in 2021 will amount to 4.1 per cent (from 1,725 mil­lion tonnes of fin­ished prod­ucts in 2020, to 1,795 mil­lion tonnes in 2021).

There is al­so an in­crease in prices of struc­tur­al steel such as “I beams.”

Ma­habirs­ingh said from De­cem­ber 2020 to mid-Jan­u­ary this year the prices moved from $3.20 per pound to $4 per pound, an in­crease of 80 cents which is 25 per cent in­crease.

“The struc­tur­al side of the in­dus­try is used to fab­ri­cate struc­tur­al steel build­ings which is the al­ter­na­tive to re­in­forced con­crete build­ings.

“In Ju­ly 2020 the price was $2.90 per pound,” Ma­habirs­ingh added.

Ex­press­ing con­cern about the in­creas­es, Ma­habirs­ingh said there’s no doubt that projects will be im­pact­ed as both con­trac­tors and clients would have al­ready bud­get­ed.

“We are very con­cerned. The last four years the steel prices would have been very sta­ble but no con­trac­tor in putting to­geth­er his bid price or ten­der would have an­tic­i­pat­ed this dras­tic in­crease.

“Fur­ther, with the com­pet­i­tive na­ture of the busi­ness peo­ple would have sharp­ened their pen­cils and cut their mar­gins and op­er­at­ing costs to se­cure work. These prices are now very dif­fi­cult for any con­trac­tor to ab­sorb,” Ma­habirs­ingh ex­plained.

He said the bench­mark price for cold-rolled pre-paint­ed steel reached a new record high last month, sur­pass­ing the pre­vi­ous high in 2008, by 15 per cent.

He not­ed that a typ­i­cal three bed­room home with an av­er­age roof area of 3,000 square feet would have cost ap­prox $150,000 (sheet­ing, gut­ters, sof­fits and fram­ing) in ear­ly 2020.

In 2021 that same roof will cost $200,000, that’s an in­crease of

ap­prox­i­mate­ly 30 per cent.

“As fab­ri­ca­tors and man­u­fac­tur­ers are well aware, steel is in tight sup­ply. Steel mills re­sponse to the coro­n­avirus was to shut­down fur­naces in ear­ly 2020, and they have been in no rush to bring it all back on­line de­spite the de­mand for steel re­main­ing high.

“Glob­al­ly, de­mand among the steel-con­sum­ing in­dus­tries is sur­pris­ing­ly ro­bust, un­like the ser­vice sec­tor of the econ­o­my, which is dis­pro­por­tion­ate­ly im­pact­ed by COVID-19,” Ma­habirs­ingh ex­plained, adding that cur­rent­ly, most roof­ing man­u­fac­tur­ers’ in­ven­to­ries are well be­low nor­mal lev­els.

He said as long as de­mand con­tin­ues to out­strip sup­ply, steel prices will re­main el­e­vat­ed, not­ing that sev­er­al glob­al mills have ex­pan­sions in the works.

How­ev­er, that is not ex­pect­ed to come on stream un­til late 2021 and once sup­ply and de­mand be­gin to ap­proach some sort of equi­lib­ri­um, steel prices will re­main high.

Oth­er con­trib­u­tors of high cost

Added to the glob­al volatil­i­ty in the steel mar­ket lo­cal man­u­fac­tur­ers con­tin­ue to face chal­lenges in ob­tain­ing for­eign ex­change.

Daniel Ra­moutars­ingh of Trin­ri­co Steel and Wire Prod­ucts Ltd ex­plained that steel like oil is bought and sold in US cur­ren­cy, adding that when a book­ing with a mill is made it is an ad­vanced pay­ment sub­ject to ship­ping.

“Most peo­ple would pro­cure through traders. There are traders in T&T and there are in­ter­na­tion­al traders who sell our mar­ket and this is how you would get cred­it on steel oth­er­wise when you book you have to pay 100 per cent up­front to the mill,” Ra­moutars­ingh said.

He not­ed that the pan­dem­ic has re­sult­ed in an in­ter­na­tion­al con­struc­tion boom as coun­tries des­per­ate­ly seek to cre­ate jobs and eco­nom­ic stim­u­la­tion.

Apart from scrap iron, steel is al­so made from iron ore, the biggest sup­pli­er be­ing Brazil.

In 2019 Brazil­ian min­ing com­pa­ny Vale SA halt pro­duc­tion at ten sites in Mi­nas Gerais state fol­low­ing a dead­ly dam dis­as­ter has af­fect­ed de­liv­er­ies of iron ore pel­lets to clients,

Ra­moutars­ingh al­so not­ed that just last week Chi­na re­moved its im­port du­ty from steel, a clear sign that it plans to ramp-up its con­sump­tion.

“What hap­pen­ing is Chi­na is not ex­port­ing so Turkey and Eu­rope are ex­port­ing to tra­di­tion­al Chi­nese ex­port mar­kets which is Asia. So you have a sit­u­a­tion where there is a strong glob­al de­mand and there is a short­age of scrap and iron ore,” he said.

He said his busi­ness has wit­nessed in­creased prices rang­ing from be­tween 75 to 90 per cent, not­ing that the prob­lem is in­ten­si­fied by over­booked mills.

“If you or­der steel this month they nor­mal­ly pro­duce it for you the fol­low­ing month but the or­der books are filled four months down the road.

“So even if you or­der to­day, car­go readi­ness will be all the way in April. In ad­di­tion, there are lo­gis­ti­cal prob­lems world-wide be­cause of the dis­rup­tion in freight due to COVID-19,” Ra­moutars­ingh said.

He added that the freight from Chi­na for in­stance which used to be US$2400 to US$2500 per con­tain­er is now priced at US$10,500 per con­tain­er.

“We have raw ma­te­ri­als that was sup­posed to be shipped in De­cem­ber out of Turkey and all the ma­te­r­i­al are sit­ting on the port up to to­day await­ing ves­sel. There is no an­swer as to when our or­der will be shipped,” Ra­moutars­ingh said, adding that his com­pa­ny im­ports from Eu­rope, Turkey and in some in­stances Chi­na.

He said his com­pa­ny booked or­ders with in­ter­na­tion­al mills in No­vem­ber last year but these could not be ful­filled due to in­creased raw ma­te­r­i­al prices.

“They con­tact­ed us in De­cem­ber last year telling us this. They told us if they want­ed us to be sup­plied in Feb­ru­ary we would have to pay 15 to 20 per cent ad­di­tion on our or­der which was al­ready con­firmed,” Ra­moutars­ingh said.

He ex­plained if the orig­i­nal price was US $1000 per tonne that or­der would now cost around US $1150 per tonne.

The scrap met­al mar­ket al­so coped with abrupt in­ter­rup­tions, and those changes con­se­quent­ly moved through the sup­ply chain, Ra­moutars­ingh said.

Gov­ern­ments in some parts of the world—rec­og­niz­ing the val­ue and cur­rent scarci­ty of scrap—be­gan to im­pose or pro­pose ban­ning the ex­port of scrap met­als.

The Unit­ed Arab Emi­rates placed such a ban on fer­rous scrap in mid-May 2020, and South Africa banned the ex­port of both fer­rous and most non-fer­rous scrap met­als start­ing in mid-Ju­ly, last year.

In its De­cem­ber is­sue, Re­cy­cling To­day picked up that theme of ex­ports af­fect­ing scrap prices.

“New mills com­ing on-line in non-Chi­na de­vel­op­ing coun­tries are pri­mar­i­ly pro­duc­ing steel via Elec­tric Arc Fur­naces. Steel scrap is their pri­ma­ry feed­stock. Con­sid­er­ing that these coun­tries al­so have high­er eco­nom­ic growth rates than the US adds to their de­mand for steel scrap. The key take­away is steel scrap de­mand is grow­ing faster out­side of the US,” it not­ed.

Ra­moutars­ingh pre­dict­ed that soar­ing prices will not on­ly neg­a­tive­ly af­fect mega projects but al­so home-own­ers.

“Peo­ple can­not trav­el,they can­not go out so they are try­ing to make their homes more com­fort­able. There is a high lev­el of home builders to the hard­ware stores but with the his­toric in­crease in the price of steel they too will be af­fect­ed,” he added.

Bhag­wans­ingh’s group mar­ket­ing man­ag­er Bali­ram John said it was a bit too ear­ly to de­ter­mine how the in­creased prices will af­fect sales.

He said Jan­u­ary was usu­al­ly a slow month but by next month the hard­ware will have a bet­ter in­di­ca­tion.

“But def­i­nite­ly we will see the ef­fects but we are not sure what is go­ing on right now,” John not­ed.