Tough Times for Builders as Steel Prices Hit the Roof

The prices of steel, a key input in construction, have soared to great heights over the past few weeks on supply fears related to the Russia-Ukraine war, with the conflict and ensuing Western sanctions raising disruption fears.

Data from the London Metal Exchange, the centre for industrial metals trading, show that global steel prices are up 14% since Russia invaded Ukraine on Feb. 24.

The price escalation, which is piling financial pressure on builders, has been occasioned by economic sanctions against Russia by the European Union which forbids trading, and a prohibition on trade to some Ukrainian regions.

Russia is the world’s fourth-largest steel exporter, supplying steel to more than 150 countries and territories. This means any supply disruption will have a damaging impact on the construction industry – which accounts for more than 50% of the world’s steel demand.

Since the beginning of the conflict, every day has seen an upward push in prices across steel products including cold rolled coils, TMT bars and wires.

Construction costs

Local steel producers, who purchase their raw materials outside the country, have been forced to hike their prices in line with the current surge in global prices.

Steel accounts for about 10% of the construction costs for high-rises.

“The prices have been increasing almost on a daily basis since the beginning of this month due to high raw material costs abroad,” says a local industry executive.

Electric-arc furnace sheet mills in most countries rely heaving low-phosphorous pig iron from Ukraine and Russia. The only other viable option is Brazil.

“With pig iron in short supply, prices are rising so fast that it is useless to mention the figures here because they will be out of date by tomorrow,” he said.

The rising cost of steel is a complete departure from an earlier outlook by Fitch Solutions, which expected the world prices to drop to $750 per ton this year.

Fitch, which predicted a price drop for the second half of 2021, expects the world steel prices to fall from an average of $950 per ton to $750 per ton in 2022, with the prices ultimately dropping to $535 per ton over 2023-2025.

According to the company, slowing Chinese domestic steel demand and rising market protectionism are expected to relax the market and drag prices lower in the medium term.

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