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Developers face higher costs as global steel prices up 50pc

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A construction site in Nairobi. FILE PHOTO | NMG

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Summary

  • Real estate project owners are staring at higher costs following a 50 percent increase in global steel prices, driven by rising demand amid supply chain disruptions in India and China due to Covid-19.
  • Data from the London Metal Exchange, the centre for industrial metals trading, shows that a tonne of steel bars has risen from Sh40,000 in April 2020 to Sh81,000 this week.

Real estate project owners are staring at higher costs following a 50 percent increase in global steel prices, driven by rising demand amid supply chain disruptions in India and China due to Covid-19.

Data from the London Metal Exchange, the centre for industrial metals trading, shows that a tonne of steel bars has risen from Sh40,000 in April 2020 to Sh81,000 this week.

In its 2021 January-June status of the built environment report, the Architectural Association of Kenya (AAK) said a kilogramme of construction metal had risen to Sh125 from Sh85 in December 2020.

This will translate to higher costs for builders, some of whom have already inked contracts that factor in lower prices of the material.

“Contractors are receiving change of price every two or three months…some steel companies are also not giving price validity beyond one week,” said AAK quantity surveyors chapter chairperson Mary Odhiambo.

“The person who would end paying in the end consumer.

“Another effect of the rise in cost could be developers reducing the number of their developments, which in the end may reduce housing supply, ultimately raising the price of housing and other infrastructure.”

Steel is a vital component in the construction industry, used to make roofing sheets, reinforcement bars, steel beams and columns, windows and doors, among other products.

Any upward change in the price of steel, therefore, means a higher cost of projects.

Ms Odhiambo expects the cost of construction to rise even further since supplies from Japan, South Africa and Turkey are unreliable in light of Covid-19 restrictions.

Main suppliers

“A number of millers in India have also shut down because of the Covid-19 situation, which has also escalated the problem. China and India are the main suppliers,” she said.

This rise in steel costs also comes when there is reduced activity in the infrastructure and real estate sectors due to tough economic conditions, labour shortages, and low demand for office spaces as companies adopt remote working to fight the spread of Covid-19 pandemic.