Shock in construction as steel prices rise by huge margins

Contractors and prospective home owners are facing a hard time due to a steep rise in the prices of steel, with the cost of some items increasing by Sh2,000 in weeks.

In some instances, the prices are fluctuating within hours and the volatility is straining relations between property owners and contractors, as the former accuse the latter of trying to rip them off.

The sharp rise in prices is also testing the manufacturing sector, which is part of the Big Four programmes identified as pillars of President Uhuru Kenyatta’s legacy. 

For instance, the 3 by 3 by 14 gauge (3x3x14g) steel tube was retailing at Sh3,500 in August, but in four months, the cost has risen to Sh5,500. Prices for the same tube currently vary from Sh5,350 to Sh5,650.

The 3x3x16g tube, initially going for Sh2,270 now ranges from Sh3,500 to Sh3,850, a massive increase of between Sh1,230 and Sh1,580. The 2x2x16g tube, which would have sold at Sh1,500 in August, now retails at prices between Sh2,500 to Sh2700.

Unknown forces

Many players in the construction sector have been left at the mercy of the unknown forces determining the prices. This is a worrying trend especially when the iron and steel industry forms about 13 per cent of the manufacturing sector, according to the Vision 2030 Manufacturing Sector report.

In 2015, iron and steel imports were valued at Sh91.2 billion but the amount reduced significantly to Sh14.4 billion in 2019 after the government introduced incentives to support local manufacturing.

Despite the effort by the State to improve the sector, the ever changing prices are yet to stabilise. 

At times the price changes are so sharp that clients who have already submitted money to contractors threaten to pull out of projects.

Such has been the case for Mr Makomirah Matylo, a construction foreman, who started off as a plumber 24 years ago. He rose through the ranks and now owns his own company with 24 workers.

Prices skyrocket in a week

He recently had to employ all his diplomatic skills to calm down a client who, having received a bill of quantity (BQ) indicating what was to be bought, wanted to pull out of a project, because he thought Mr Matylo wanted to con him out of his money. This was after steel prices skyrocketed in under a week.

“We use the BQ to get materials to work on projects. The constant changing of prices is a real challenge especially when they shoot upwards. Clients do not respond well when there is a rise. They rely on us to know the price. At times there is a standstill because they want you to work with the fixed budget that you had agreed on earlier,” Mr Matylo told the Nation.

But things have not always been this way, according to the foreman, who has built skyscrapers, schools, blocks of flats and swimming pools. Things became worse in July last year, when the fluctuations became too many.

Most unpredictable

His sentiments are echoed by Mr Mike Omitoh, who runs a hardware shop in Ruaka, Kiambu. The good old days when the prices were mostly stable, are gone. And the last three weeks have proved to be the most unpredictable, he said.

For instance, in December, the prices of the D8, D10 and D12 metal bars were Sh500, Sh900 and Sh1,000 respectively. In January, the prices shot up, with the D8 now going for Sh700, D10 Sh1100 and the D12 now retailing at Sh1,400.

The prices for the steel tubes, also known as hollow structural section metals, also shot up. The 1x1x18g, previously sold at Sh750, now goes at Sh900. The 2x2x18g tube, which two weeks ago retailed at Sh1,300 is now being sold at Sh1900 -- a massive Sh600 increment.

This, according to Mr Omito, happened overnight, and no one is willing to talk about the new prices.

“We have not been given any reason at all for the price fluctuations. It is all fuzzy information when we ask about the change of prices. Some reason we are given by suppliers is the lockdown affected the flow thus the high prices,” he said.

Unhappy customers

Like Mr Matylo, he too has had to deal with unhappy customers, whom he says do not understand that pricing is beyond his control.

“Some customers, upon hearing the new prices do not even wait, they simply turn and walk away,” Mr Omito said.

He calls on the government to come up with a way of regulating the prices without directly affecting the principles of a free market.

Some 10 kilometres further in Juja, another retailer in the steel sector is not a happy camper. Mr Joseph Malicha, a partner at Sontrust Steel Distributors Ltd, which deals with building materials, is worried by the uncertainty in the pricing of steel.

He gave a short record showing the changes in the pricing of his steel wares in July, December and this month.

In July 2020, he sold metal bars including the D8 at Sh450, the D10 at Sh650 and D12 at Sh870. By December, the prices shot to Sh480, Sh680 for the D10 and Sh980 for the D12. Come January, the prices for all three steel bars shot to Sh550, Sh720 and Sh1,020 respectively. Whereas the prices increment may seem minimal, the effect is heavy for investors dealing in massive structures that require a huge amounts of steel bars.

When the new prices came in 2021, Mr Malicha dismissed the changes as effects of the reinstated 16 per cent value added tax which had been dropped to 14 per cent as one of the Covid-19 mitigating measures taken by the government early last year. However, upon checking the prices keenly, he is sure the variation of 2 per cent in tax could not have caused such a huge change.

Suppliers not affected

‘It is the end clients who are affected. Suppliers, who bring us the commodities with the new prices are not really hurt as they price it in a way that they are not affected by the fluctuations. At times they say the raw materials have become expensive,” he told the Nation.

He explained at times when the prices escalate so high, clients temporarily halt their projects as they wait for prices to drop.

“Only clients with deep pockets can run their projects unaffected. But for the ordinary clients, who are the majority, price hikes have often seen them stop many projects. Things are tough,” he said.

In Thika, a dealer in steel products who sought anonymity, closed his business two weeks ago.

“I stopped the steel business. The prices are really fluctuating and I did not have enough funds to sustain the business. I decided to close it, I am now venturing in other things,” he said.

Various hardware shops in Kamukunji and Gikomba are selling at the current prices. Though most retailers did not have the steel tubes, the prices were almost similar in all the shops.

No price control

“There is no price control, especially from July last year when the price of steel started going up and whenever it goes down, it is only for a day or two before it shoots up again. Something should be done to regulate these prices,” said Mr Matylo.

A testament that things are not rosy in the industry.

Cases of substandard steel being supplied in the market are still rife. For those new in the sector, Mr Matylo says, they cannot differentiate the real steel from fake ones and often end up getting in trouble with their clients.

“Some few years back, the government really tried to crack down on the fake steel bars. But recently, fake ones have been getting to the market. They are sold in hardware stores and at times, unsuspecting customers are approached by characters saying they will sell them steel bars at a slightly cheaper price. You buy, give them to a contractor, and they break when bending them,” he said.

Mr Matylo was referring to April 2017 when the government banned the manufacture, importation and use of twisted steel bars in construction beginning 2018 over safety concerns.

The Kenya Bureau of Standards (Kebs) said following consultations with local manufacturers, it had been agreed that only ribbed bars would be manufactured and sold in Kenya.

“Arising from a meeting recently held between Kebs management and representatives of the steel industry and the Kenya Association of Manufacturers, it was resolved that as from April 1, 2017, only ribbed bars shall be manufactured and offered for sale in the country,” said the managing director at the time, Mr Charles Ongwae.

This meant that the Kenyan construction sector would be required to use ribbed or deformed steel bars which experts said give reinforced concrete more strength.

Deal with fake steel

Should the government make extra effort to deal with the fake steel, the seasoned foreman believes many substandard materials would be dealt with accordingly.

With Kenya being a free market where prices are determined by the shifting demand and supply curves, it will be a tough task for the government to issue prices for every commodity in the steel sector. However, retailers suspect there are some people who are benefiting from the instability in the sector, and want the government to streamline it.

The Competition Authority of Kenya (CAK) in response to the complaints raised by players in the sector, said they are looking into the industry to unearth the cause of the instabilities.

“The authority is aware that prices have been volatile in several sectors, especially those that rely on imports. Price fluctuations are caused by several factors, including the forces of supply and demand as well as other externalities,” CAK’s communications and external relations manager, Mr Mugambi Mutegi, told the Nation.

“If the authority determines that the fluctuation is due to infringement of the Competition Act, we shall invoke the relevant provisions of law to remedy the situation,” said Mr Mutegi.

Improve quality

The Kenya Association of Manufacturers (KAM), through its Metal and Allied Sector chairperson Bobby Johnson, urged companies and stakeholders in the steel industry to invest in innovative technology to improve the quality of products at a lower cost and counter the growing competitive market.

He said the unfavourable forex exchange fluctuations are to blame for the current inconsistent prices in the steel sector.

“The fluctuations in the prices are a result of forex exchange fluctuations, which are likely to affect Kenya since we are not naturally advantaged to have iron ore, a basic raw material in the production of steel,” said Mr Johnson.

The KAM chief explained that the recent increase in the rate of power and increase in global steel prices also resulted in an increase of prices locally.

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