Exploding Prices of construction materials

Construction industry experts GVS has spoken with believe that due to exploding prices of essential construction materials (especially steel and cement), the prime minister’s low-cost housing initiative is under serious threat of collapsing— unless immediate action is taken to scrap the 30 percent regulatory duty imposed on steel imports.

The prices of steel products have skyrocketed in the country with MS (Mild Steel) bars, an essential component in the construction of houses, going for Rs.185,00-Rs.190,000/ton in the local market.

This, coupled with the appreciation of US$ and other factors, has escalated the situation to a point where the government’s aim to deliver low-income housing between the price ranges of Rs 1.3 million to Rs 2.7 million through PPP (Public-Private Partnership) has become difficult.

Read More: Steel rebar prices threaten PM’s Naya Pakistan Housing

The Demand to withdraw duties

The Contractors Association of Pakistan (CAP), citing these factors as mentioned above, including the hike in raw material prices – like steel, cement, and bitumen – has urged the government to take notice and make amends to its outdated policies.

An advertisement disseminated by the association in the first week of November outlined how the construction industry is being strangled by an ever-increasing price of these essential raw materials.

CAP Advertisements argued that prices of steel bars have increased from Rs. 104,000/ton to Rs.183,000/ton; cement prices from Rs. 480/bag to Rs. 730/bag, and bitumen from Rs. 64,700 per ton to Rs. 130,600 per ton between March 2020 and October 2021.

The accumulated effect of these developments has sent alarm bells ringing through the construction industry market, and ABAD (Association of Builders and Developers), with more than 1200 builders, wants an immediate withdrawal of the 30 percent regulatory duty imposed on imports of steel bars to provide much-needed relief to builders and the construction sector.

The continuing existence of these regulatory duties (continuing from 2015), points to bureaucracy’s insensitivity and the existence of a strong steel cartel in the country, influencing policy-making circles.

Regulatory duties, why?

Regulatory duties are imposed by a government or a state to protect its local industries from external market fluctuations through the placement of limiting conditions/restrictions on im- ports.

In 2015 the price of Mild Steel (MS) bars dropped significantly in the international market, coming down from $630/ ton to $430/ton, and 15 percent regulatory duty was placed on imports of MS steel bars, under pressure from Pakistani steel manufacturers, with the argument to protect the local industry.

Read More: Pakistan steel industry asks government for “breathing room”: PALSP

In 2016 owing to another drop in international prices of steel bars ($430/ton to $225/ton), the government intervened again and doubled the regulatory duties to 30 percent. It has stayed there since then.

Rising international prices

If there was a rationale behind these regulatory duties in 2015-16, it was lost when international steel prices rose to US$ 440/ton in 2018. Over the past several months, prices have escalated to well above $700/ton in the international market.

The absence of imports has multiplied steel prices in the local market, creating serious challenges for the construction industry in general and low-cost housing programs like Naya Pakistan especially.

Imperative to scrap duties

Given the scenario, the Prime Minister’s low-cost housing initiative is under threat. If these high steel and cement prices continue to rise, then construction costs of projects would increase way above what low-income groups can afford, builders will not be able to deliver in the price limits set by the government, and the whole initiative could —come tumbling down.

Also, if the right policy changes – like removal of Regulatory duties on steel imports – aren’t adopted immediately, most builders would not be able to undertake the projects within the price limits set under the NAPHDA initiative, consequently reducing both demand and supply.

Construction industry experts believe that though the incentives provided by the government to builders and the construction sector through fixed tax regimes, amnesty schemes, and stimulus package for low-income housing through targeted subsidies were much helpful, yet these incentives will fail to ameliorate the pressures created by unusual prices escalation of essential commodities like steel, cement, bitumen, and others.

Read More: General Anwar Ali Hyder Chairman (NAPHDA): Unpacking The Low-Cost Housing Initiative

The government, therefore, needs to set its priorities right between the survival of the construction industry (especially low-cost housing) and the protection of steel magnates. The first step required is to end the 30 percent regulatory duties on importing MS steel bars. It would bring much-needed respite for the low-cost construction sector and help keep the PM’s Housing vision alive.