Real estate project owners are staring at higher costs following a demand-driven 50 per cent increase in global steel prices, amid supply chain disruptions in India and China caused by Covid-19.
Steel is a vital component in the building industry, used to make roofing sheets, reinforcement bars, steel beams and columns, windows and doors, among other products. Thus, any upward change in its price means higher cost of projects.
Data from the London Metal Exchange, the centre for industrial metals trading, shows that the price of a tonne of steel bars has risen from Sh40,000 in April 2020 to Sh81,000 this week.
In its 2021 January-June Status of the Built Environment Report, the Architectural Association of Kenya (AAK) said the price of a kilo of construction metal here has risen to Sh125 from Sh85 last December.
This will translate to higher costs for builders, some of whom have already inked contracts that factor in lower prices of the building material.
"Contractors are receiving change of price every two or three months... some steel companies are also not giving price validity beyond one week," said AAK quantity surveyors chapter chairperson Mary Odhiambo. She sees the final consumer paying the price.
She adds: "Another effect of the rise in cost could be developers reducing the number of their projects, which in the end may reduce housing supply, ultimately raising the price of housing and other infrastructure."
Ms Odhiambo expects building costs to rise even more since steel supplies from Japan, South Africa and Turkey are unreliable given Covid-19 restrictions.
"A number of millers in India have also shut down because of the Covid-19 situation, which has also escalated the problem. China and India are the main suppliers," she said.
This rise in steel prices comes at a time when there is reduced activity in infrastructure and real estate sectors due to tough economic conditions, labour shortages and low demand for office spaces as companies adopt remote working to fight the spread of Covid-19.