Stress Test For Builders As Steel Price Soars

Source : The Business Times, March 20, 2008

The price of steel has almost doubled since January 2007 and this could come in the way of the construction industry's quest to reduce its dependence on concrete.

In Singapore, industry players report that the price of both steel reinforcement bars (rebars) and structural steel has gone up by around 80-100 per cent over the past 15 months. This comes on the back of higher global demand and hikes in the costs of the raw materials used to make the metal.

The development is a setback for the construction industry, which was veering towards using more steel to reduce dependence on concrete, which is more prone to supply-side shocks.

'In the last 15 months, steel prices (steel rebars and structural steel) have gone up by about 80 per cent,' said Jackson Yap, chief executive of United Engineers.

Brandon Lye, assistant vice-president for Sembawang Engineers and Constructors, similarly said that steel prices have doubled over the past 18 months.

Data provided by industry regulator Building and Construction Authority (BCA) shows that the price of 20mm-high tensile steel was $752.50 a tonne in January 2007.

But by January 2008, the price had climbed to $1,235.46 a tonne - a rise of some 64 per cent. The price continued to climb in February and March, industry players said.

On the back of this, the proportion of steel cost against total construction cost has gone up from about 10 per cent to 15 per cent over the same period, Mr Yap said.

One reason for the steel price hike is increasing global demand, said Bernard Chung, second vice-president of the Singapore Structural Steel Society.

Macquarie Research's data shows that global steel consumption rose from 1.24 billion tonnes in 2006 to 1.33 billion tonnes in 2007. Demand is expected to continue growing in 2008 - Macquarie Research forecasts global steel demand of 1.43 billion tonnes for this year.

Mr Chung said the demand is being driven by developing economies such as Brazil, Russia, India and China. He said that these four countries alone accounted for about three-quarters of demand growth between 1997 and 2006.

Similarly, Macquarie Research said that China accounted for 62 per cent of world demand growth from 2000 to 2007.

Steel prices have also been pushed up by large rises in the costs of raw materials, industry players said.

'The cost of components used to make steel - iron ore, scrap, coking coal, coke, freight and electricity - have also gone up,' Mr Chung said.

Macquarie Research said that steel mills are expected to pass through large rises in raw material costs in 2008, which could add around US$150 per tonne to steel costs. Add this to price increases brought on by surging demand, and the overall price of steel could climb even more this year, analysts said.

In Singapore, increases in the price of steel could impact the industry's move towards using more steel for building.

BCA, for example, has been encouraging more extensive use of steel for construction since Indonesia banned the export of concreting sand in January 2007. Land sand is used to make concrete.

'Rising steel prices will slow down the drive towards the use of more steel for sustainable construction,' said United Engineers' Mr Yap.

BCA, however, pointed out that the prices for both ready-mixed concrete and steel have increased by about 60 per cent, which means that the situation has not changed that much in terms of cost competitiveness.

'However, steel is more readily available from many sources as compared to sand and granite,' a BCA spokeswoman said.

And where faster 'time-to-market' is required, developers will still continue to use steel, Mr Yap said.