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While the steel producers are blaming the gap in demand-supply as the reason for the rising prices, the builders have been maintaining that it is the lobby of steel manufacturers that is behind this unprecedented rise. A look by SHARATH S. SRIVATSA
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Eternal increase?: There seems to be no control over the prices of steel and other materials
The rising prices of steel has become a cause of concern for the construction industry that has been grappling with the rising prices of cement, sand and labour during the last few months. Posing a serious problem to the industry, the prices of steel has seen an upward movement by about 35 per cent during the last three months, leading to delay and cost escalation of projects, both in private and public sectors.
The construction industry that consumes 33 per cent of the steel produced in the country in terms of TMT bars, rods and structural steel, has had to grapple with the price rise that has been calculated at an average of 1.25 per cent per day after the Union Budget was presented. The net result has been that the construction industry has seen an escalation in cost by around 30 per cent, after calculating the price rise in cement and labour.
Lobby at work
While the steel producers are blaming the gap in demand-supply as the reason for the rising prices, the builders have been maintaining that it is the lobby of steel manufacturers that is behind this unprecedented rise. The major five integrated steel plants that control 65 per cent of the total steel production in the country have formed the Indian Steel Alliance in 2001. Out of these five, only three produce steel bars, rods and structural steel called long products.
To make their point clear, the Builders’ Association of India-Karnataka President A. Chamaraja Reddy says, “Periodical price increase effected by the manufacturers has been almost identical during all these years despite different production cost. This leaves room for doubt that steel producers are ‘acting in concert’ and have reached an understanding for a ‘pricing discipline’.”
Mr. Chamaraja Reddy says contractors executing Government works are incurring losses as they are not covered by the escalation clause. “Most of the private works are covered by the clause, and contractors can invoke it if the price rise is more than 10 per cent. Government contractors are not covered by this clause, which results in huge losses." He says that if corrective steps are not taken immediately by the authorities, works may be affected as contractors may not come forward to bid.
Quoting the Central Statistical Organisation growth data of various economic activities constituting GDP, he says the growth rate of the construction industry has actually declined from 16.5 per cent in 2005-2006 to 9.6 per cent in 2007-2008.
Demands
The BAI has asked for duty-free imports on building materials and ban export of steel. It has also asked for reimbursement of the increased steel price based on SAIL rates published from time to time for ongoing and upcoming projects.
The BAI has requested the Director General of Intelligence and Research to enquire into the causes of unprecedented steel price increase from 2004 till March 2008, especially after the Union Budget.
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