Costly steel spoils party for builders
Kenya’s construction industry is set for difficult times after the prices of steel, a key raw material in the sector, more than doubled globally in the 12 months to May 2021.
Data from the London Metal Exchange (LME) shows that steel bar prices jumped from less than Sh40,000 a tonne to more than Sh80,000 a tonne between April last year and May this year.
The demand has been sparked by renewed optimism of global economic recovery, particularly in the United States and China’s production hubs.
Kenya still imports Sh91 billion worth of steel annually despite rising investment in steel production locally.
“The prices have been increasing almost on a daily basis since the beginning of the year, due to high raw material costs abroad,” said Ramesh Bora, a sales manager at Accurate Steel Mills in Nairobi.
Developers estimate that steel takes up to 10 per cent of the total construction costs for a multi-storey building.
Sharp price increase
This means property developments budgets could be hit as contractors are hit with increased prices.
Infrastructure projects could bear the brunt of the high prices forcing budgets to be revised as roads, bridges, dams and rail projects consume large volumes of still.
Metal distributors at Kens Metal Industries in Nairobi confirmed that prices of steel for construction has increased sharply in the recent past.
“We have witnessed an increase in construction costs especially steel, due to high importation costs,” said a source who is not allowed to speak for the company.
According to World Bank data, steel imports to Kenya have soared from under Sh70 billion in 2015 to over Sh90 billion, making the cost a major drain on the country’s foreign exchange after oil.
The reopening of global shipping routes has also put a strain on existing steel producers as they struggle to meet pending orders that have built up due to lockdowns.
The high prices come after a period of an acute shortage caused by lockdowns that saw global shopping activities come to a halt.
In April, the Architectural Association of Kenya (AAK) blamed the shortage on Kenya’s over-reliance on Chinese building and construction materials such as electrical equipment as well as steel.
Steel is used in making corrugated iron sheets, billets for building construction, automotive parts and many other critical parts.
Steel consumption is a key barometer of its economic growth speed hence the trend could hit Kenya’s pace of growth especially in real estate and infrastructure.
Analysts however say that the trend is but a bubble waiting to burst as steel factories reopen across the world to ease supply constraints.
