Rising global metal prices to hits-hard the building industry

Last Updated 13 years ago by Kenya Engineer

The global rise in price of metal is the latest hurdle the construction industry  has to face after continued scrutiny following collapse of buildings in the country. The increase in price follows the fresh rally in global metal prices and the weakening shilling.

Similarly, the shilling has dropped from the stable level of 85 that it held to the dollar for most part of the year to 87.46. These changes are already putting pressure on firms to adjust prices of basic raw materials for the construction industry upwards, manufacturers said.

“We haven’t increased prices so far but having monitored these changes keenly, I see manufacturers raising raw material prices by at least six per cent shortly after elections,” said Devki Steel Mills chief executive Raval Narendra.

Only last year, the price of the twisted iron bars — the universal beams used to make reinforcement frames for tall buildings — increased by 25 per cent to Sh120 a kilogramme from Sh96.

Iron and steel form a significant component of the metals that Kenya imports each year to meet increasing demand from the construction industry.

The level of imports of these two items has grown by more than 100 per cent in the past five years from Sh21 billion to Sh63 billion driven by increased investment in the construction sector and infrastructure projects.

The government has lined up a number of mega projects including the construction of Lamu Port, Konza City, numerous roads and railway lines and Greenfield Airport Terminal at Jomo Kenyatta International Airport in Nairobi. Together, these projects are expected to lift the demand for these items after elections.

Various presidential candidates contesting in the March General Election have also pledged to raise annual construction of housing units beyond the current level of 30,000.

Copper, another metal used mainly in wiring cables, has also gone up. The price of one tonne of copper which was $7,910 at the beginning of the year (Sh672,350) has since risen to $8,258, equivalent to Sh722,244 at the prevailing exchange rate.

This means an importer has to pay Sh49,874 more for every tonne of copper material imported at the moment due to weakening shilling and high prices in the international market.

Similarly, the twin issues of exchange rate and rising global prices have escalated the price for imported zinc to Sh188,964, which is Sh22,994 more than the January price level of Sh165,750.

Officials have, however, played down the likely impact of these changes on the entire construction industry saying metals often make up a negligible portion of putting up a project.

“The prices of these metals will always be determined by global prices and exchange rate because we don’t produce them locally,” said National Construction Authority CEO Daniel Manduku.

“But the overall impact of recent prices increases on total cost of construction would generally be negligible, ranging from 1.2 to 2.5 per cent.”

The price increases of metals is set to apply breaks on the steady growth that the construction industry has enjoyed in recent years.

As major segments of the economy began to scale down activities in the run-up to the polls, government figures indicate that building has maintained its growth streak.

The consumption of cement — a key indicator of the sector’s growth — rose to 370,562 tonnes in November, six tonnes more than what was used in the first 10 months of that year.

Similarly, the production of galvanised sheets went up more than the same period by 9.3 per cent to 21,481 tonnes.

“Generally, the prices for metals such as steel bars are constantly on the rise because of the wide gap between the supply and demand,” said NCA chairman Steven Oundo