Prices of scrap – the raw material for the steel industry – have soared Tk15,000 per tonne in just three weeks despite a drastic drop in the international market as the government has tightened imports amid depleting foreign currency reserves.
The supply shortage of scrap has pushed up MS rod prices to their previous high levels although the demand for the major construction material is still at a low ebb.
To stave off the dollar crisis, the central bank has substantially increased margins relating to letters of credit (LC), which has led to a drastic drop in import of scrap, like other products.
In the last five months, the price of scrap in the international market has decreased by about Tk31,000 per tonne, according to market data.
Business persons in the ship breaking sector said import was slightly lower due to higher booking rates from March to April.
Import was supposed to increase in May when prices dropped significantly in the world market. But it did not happen and, on the contrary, import declined, they added.
According to Investing.com, scrap was sold at $386.85 per tonne in the international market on Tuesday, way down from the booking price of $700 on 7 March.
Officials at ship breaking yards said at present every tonne of scrap is being sold at the yards at Tk60,000. But before Eid-ul-Azha, the price came down to just Tk45,000.
Along with scrap, the prices of steel raw material pellets and billets have also increased. At present, per tonne pellet is sold at Tk73,000 and billet at Tk75,000. Before Eid, pellets were Tk60,000 per tonne and billet Tk62,000.
Sekandar Hossain, proprietor of KR Shipbreaking Yard, said scrap prices are on a downward trajectory in the world market.
"If import can be increased, the price of both scrap and MS rod will come down. But due to the dollar crisis, the country's importers have to reduce imports despite such low prices, which will have a long-term impact on the rod market as well as the construction sector," he added.
Sabbir Ahmed Chowdhury, vice president and head of Standard Bank's Khatunganj branch, said that banks are opening LCs with a 100% margin for the import of any products other than daily necessities.
Importers are being discouraged to import these products due to the dollar crisis, which has led to a decline in scrap imports in the last three months, he added.
According to the Bangladesh Ship Breakers and Recyclers Association, imports of old ships have fallen consistently since April to half of the normal period.
In July, 56,084 tonnes (eight scrap ships) were imported. Before this, 88,226 tonnes of ships were imported in June and 43,686 tonnes in May.
Imports were 109,920 tonnes in April, 182,975 tonnes in March, 130,705 tonnes in February and 157,647 tonnes in January.
Abu Taher, president of the Bangladesh Ship Breakers and Recyclers Association, said that the price of scrap and old ships has decreased a lot in the international market over the last three to four months. But old ships are imported through deferred LCs and bills are settled after 160-180 days.
"The volatility in the dollar prices for the last two months has made importers worried about how much they will have to pay against the dollar to settle the import bills 160 days after the ship is dismantled. As a result, they have reduced imports to avoid the risk of losses. This has created a shortage of scrap in the yards," he added.
The import and supply crisis has also affected the steel industry by an increase in scrap prices. MS rod prices were marginally lower for nearly three months as sales stagnated due to additional price hikes and scrap prices fell in the international market.
But in the last three weeks, the price of MS rods has increased by Tk4,000 per tonne.
According to the steel mills, currently, 75 grade (500 TMT) MS rod of different brands is being sold in the market at Tk85,000-88,000, which was Tk81,000-84,000 even in the middle of July.
Earlier, from November 2020, the price of MS rods was on the upward momentum for almost one and a half years, reaching Tk92,000 per tonne in March. They had been sold for a maximum of Tk55,000 in October 2020.
Sarwar Alam, director of HM Steel, however, said the flow of rod sales is lower than before. But the price of MS rods has gone up due to an increase in the cost of production caused by rising scrap prices.
He said the drop in scrap imports has helped save dollars but consumers in the country are not getting the benefits of scrap price decrease in the international market. If import is interrupted now, there is little possibility of reducing the scrap prices in the domestic market.
According to the association, ship dismantling goes on at more than 80 yards in Sitakunda, Chattogram, in the Bay of Bengal. But over the past three months, more than 40 of them have stopped operations due to an unusual drop in scrap prices. Some 20,000 workers are directly involved in the shipbreaking industry and at least 7,000 of them have lost their jobs during this time.