High global oil and steel prices push up building costs
The sky high oil prices have also sparked an increase in construction items, especially paints and cement. Photo/FILE
Expenses in construction are set to escalate as manufacturers of building materials raise their prices to reflect the rising cost of doing business due to commodity boom at the international markets.
Makers of cement, corrugated sheets, paints and steel products have seen a surge in production and operational costs, prompting them to either pass through the additional expenses or warn of imminent price changes.
The runaway costs has been linked to expensive oil and metal, which are not only adding to inflationary pressure but weaken the Kenyan shilling against the dollar as twin commodities accounts for 33 per cent of the country’s import bill.
On Monday, the World Trade Organization (WTO) warned that the ongoing increase in commodity prices is expected to hold into 2011 on increased demand from China and India as well as new demand from Japan, which is planning a massive reconstruction after it was hit by earth quake and Tsunami.
This signals that the cost of construction items in Kenya are expected maintain an upward trend for the remainder of the year.
“Between 2000 and 2010, prices for metals rose faster than any other primary commodity group, with average annual increases of 12 per cent, followed closely by energy with 11 per cent growth per annum,” the WTO said yesterday in review of global trade for 2010.
It added that the commodity boom is unlikely to ease as a raft of economies pick up from the global economic meltdown that kicked off on August 2008.
Copper prices have risen 14 per cent since December followed by Zinc (30 per cent) and aluminium (10 per cent), according to the London Metal Exchange, but they have grown more than half over the past year.
“We increased our prices by eight per cent on the 1st of April on high raw material costs, for example the 1.5mm squared roll is now going for Sh2095 from Sh1927 last month,” said Margaret Ngina a customer care representative at East African Cables.
The rise in cables prices are meant to cover for rising copper and aluminium prices in the international market and re-energise East Africa Cable profits, which have now dropped for the second year in a row.
But the biggest impact of the rising metal prices on construction costs is likely to reflect in the price of corrugated sheets, which is the preferred roofing material for small and mid-scale investors and whose prices have increased 12 per cent since the start of the year.
Metal costs account for between 50 and 60 per cent of sheet-makers’ production costs, and a rise in the commodity translates to significant cost additions to the manufacturers.
The price of the three meter sheet gauge 28 has increased to Sh1, 200 from Sh1, 000 in January and players in the roofing market are showing a bias for higher prices in coming weeks.
Besides expensive metal, the sky high oil prices have also sparked an increase in construction items, especially paints and cement.
Major world markets priced crude at $126 a barrel — the highs last seen in 2008 — on expectations of increased demand from fast growing economies such as China, India and Brazil and uncertainty arising from political turbulence in the Arab world.
Is has gained $30 per barrel from January while the prices of refined products has risen by up to 20 per cent during the same period—jerking up transport costs.
Players in the cement market say the rising production costs are set to reverse the falling cement prices as transporters move to increase their fees by a fifth to reflect the surge in fuel expenses.
Cement manufacturers say that transport expenses account for about 18 per cent of the retail price of cement and that a 20 per cent increase in transport costs could see the cost of a 50-kilogramme bag of cement increase by between Sh25 and Sh40 depending on the location, a move that could pile pressure on construction costs.
The price of a 50 kilogramme bag of cement has dropped to a low of Sh650, from Sh720 in January 2010 in Nairobi.
“We have outsourced transport services to private contractors who are now asking for a 20 per cent rise, this will push up the prices of cement” said Kephar Tande, the managing director of East African Portland Cement Company (EAPCC).
Paint makers say production costs had risen by 20 per cent in the past three months, forcing it to pass on to consumers some of the expenses they had been absorbing in what will lead to a 10 per cent increase in prices from Friday.
Oil and Titanium— which account for about 60 per cent of the paint makers’ production costs—have risen by about 31 and 10 per cent respectively.
“Under these adverse conditions we are left with no other option but to affect a further price increase of 10 per cent effective April 15,” said Mr Gaurav Bhalla, the head of sales and marketing at Crown Berger.
