Forging a way out of galloping reinforcement steel prices
A dangerous dimension is creeping fast into the real estate industry in Nigeria with the soaring prices of building materials, especially reinforcement steel. Unless something is done urgently to reverse this worrisome trend, the dream of many Nigerians to own homes will remain a mirage while prospective tenants seeking decent and affordable accommodation to rent may become common preys in the hands of landlords who, after all, are not father-Christmas, writes CHUKA UROKO
For most Nigerians, shopping these days has become a huge nightmare. Whether in the local markets, supermarkets or in specified product market, buyers have to contend with steady rise in prices.
Prices of many products now rise in varying proportions almost on weekly if not daily basis. Budgeting has become extremely difficult for most households and businesses because prices are never the same as they were on the last visit to that market.
In the real estate industry, a dangerous dimension has set in with the galloping increases in the prices of reinforcement steel products used for construction. Feelers coming in from the construction sector indicate that the continued rise in the prices of steel reinforcement bars otherwise known as Rebars has become a major source of concern to many stakeholders in the industry including clients, developers, contractors, and the whole gamut of professionals.
From about N275,000 per ton in September 2020, it rose through the successive months to N345,000 per ton in January/February and became N400,000 per ton since March.
Unless this worrisome development of spiraling prices is urgently halted before it gets out of hand, the dream of many Nigerians to have a home of their own may remain a mirage. Similarly, the dream of many others to live in decent, affordable rented accommodation in any part of the country would be in jeopardy because landlords whether the corporate, individual or even government would always transfer the price hike to the rents on their property or the prices in the case of sale.
A worse scenario is the delicate situation where some unscrupulous builders cut corners, downgrade steel reinforcement in their construction projects and subject the building to sudden collapse either as an ongoing or a completed project, resulting in wanton destruction, loss of lives and resources.
In this special survey, both sides of the divide – the manufacturers/sellers on one side and buyers/users on the other are engaged in a “round table” discussion to seek a way out. It is also hoped that the relevant government agencies and authorities would pay some attention, see reasons to intervene strategically and do the needful to forge a positive way forward.
On why Rebars prices have been on an unrelenting rise for a while now, manufacturers have decried the following amongst other factors: Acute scarcity and high cost of scraps, a critical component in the production of rebars; Acute scarcity and high cost of billets, largely imported and affected by the fluctuating exchange rate of the naira to other foreign currencies; High cost of the chemicals used in rebar production that varies in response to exchange rate fluctuation, and delay in clearing of goods because of congestion at Apapa and TinCan Island ports.
Others are, high landing cost because many shipping companies abroad do not want to come to the West Africa coast owing to delay and have to be induced through payment of high landing cost; Demand overwhelms supply in the global market and thus affects the international prices of rebars; and the prices of local rebars are just as competitive because most of the components used in their production are imported from abroad.
This survey covered several manufacturing companies including Top Steel Nigeria Limited, Saba Steel Industrial Nigeria Limited, African Foundries Limited, Metal Berg Manufacturing, Gmicord Steel Industries, Ogas Steel Nigeria Limited and Twins Faja Nigeria Limited.
The GM/CEO of Saba Steel Industrial Limited, Hassan Hammad, explained that “two major things affect the price of rebars. The first one is scraps which has become very scarce with the price rising from N120,000 per ton to N250,000 per ton in recent time.
Billets, the other component, are also very costly because it is mostly imported and the price varies according to fluctuations in naira exchange. The cost of freighting has also increased from $40 per ton to $100per ton. Most shipping companies avoid the West African Coast because of delay at the ports.
A top Executive of Top Steel Nigeria Limited, who identified himself simply as Mr. FM, attributed the galloping prices of rebars to forex issue, currency devaluation, Apapa Port congestion and varying import costs. “It is supposed to take 30 days maximum to clear goods but it currently takes over 90 days to clear goods at Apapa Port. The price of scraps has increased from N150,000 per ton to N300, 000 per ton in addition to other things that are also imported. The truth is that demand is currently more than supply,” he said.
General Manager of Metal Berg Manufacturing Limited, Majed Hamradi attributed the development to the same factors, saying that the reason for price increase is the falling value of the naira.
“The price of the local product cannot be any different because we also use the components imported from abroad. If a local manufacturer has stock and the price abroad rises, he too will increase his price so that he can make up for the next importation,” he noted.
On the other hand, CEOs of some affected companies recounted their own experiences and offered some advice on the way forward. Anthony Aihie, the Managing Director/CEO, Design Union Limited, said “steel reinforcement is the most expensive and critical item in the erection of concrete structures, the industry standard in Nigeria. Its importation and local manufacture is unfortunately monopolised by a small cartel that does not mean well for national growth and development.”
“Until a coordinated policy to develop a viable local steel industry is put in place, the problem will continue. Government, through the Bank of Industry, should give incentives like loans and tax holidays to Nigerians willing to go into that sector to spur competition and availability. Like the Agric sector, steel is vital to nation building,” he reasoned.
Charles Njoku, MD/CEO of Afriprops Development Company Limited, says the rising rebar prices has “affected the cost of our on-going projects by, at least, 20 percent increase which we will recover by transferring into the selling price of the completed housing units. There is nothing anyone can do about it, but it is not just iron rods alone, virtually every aspect of the economy is affected”.
For Tayo Sonuga, CEO, Haven Homes Limited, “the galloping prices of rebar keep upsetting our project budgets. If we bought rebar for N275,000 per ton in September 2020 and it is selling for N400,000 per ton in March 2021, a percentage increase of more than 45 percent in less than six months, does it make any sense? If we transfer this increase to the selling price in the same proportion, how many people can afford it?”
Dennis Oberabor, MD/CEO of PWAN Premium Limited, shares the same concern: “Price of iron rods has been a thorn in the flesh for us in the real estate business. These rods are major components of all our reinforcement work. Our contractors continue to demand upward variation in their construction estimates on daily basis. Unfortunately, our clients display inelasticity to products upward price change.
We therefore call on the government for more supporting measures to stabilise the sector. Greater forex rates stability and more industry friendly rates and charges for real estate registrations, certification and approvals.”
It is pertinent to note that the official rate of the naira to the dollar during the period under review hovered between the lowest of N379.42 to the highest of N412.44 with an average of N385.79. The difference between the lowest and highest rates is N32.65 which translates to about 8.6 percent depreciation in naira.
Similarly, the black-market exchange rate for the period hovered between the lowest of N482.00 and highest of N486.00, a difference of N4 which translates to 0.8 percent depreciation in naira. The price of steel in the international market currently hovers between a wide price range of $400 – $1200 depending on the country it is sourced from and the degree of inclusive costs accommodated.
Are these statistics enough to raise rebar prices so high above the bar? That is an issue to ponder on because many lives and a critical industry are involved.
In any case, although steel production is a private business like a lot of other activities in the economy, the government has a lot to do in the short, medium and long term to stem the tide of galloping rebar prices. In the short and medium terms, as recommended, the government should strategically deregulate the sector to allow for more participation of local entrepreneurs.
The Bank of Industry should accord top priority to giving low interest loans to such indigenous enterprises; the Central Bank of Nigeria should allow some forex concessions at official exchange rate to steel producing companies strictly on the conditions that they bring down their rebar prices.
The Consumer Protection Agency should beam searchlight on the sector to check arbitrary price increases. In the long run, the government should continue to work hard to develop the economy to make it more productive so that the naira will exchange more decently against other currencies.