Prices of rod are likely to surge again after a brief decline for the past two and a half months, according to manufacturers.
They attribute the surge to the value-added tax (VAT) hike in the manufacturing stage in the proposed budget for FY2022-23 and a US dollar crunch in the local market.
The local market of the key construction material had been spiking since late 2020, reaching a record Tk92,000 per tonne in March this year. The spike has been the fallout of its pricier raw material – scrap – in the international market, rising freight charge and the Russia-Ukraine war.
The market later calmed down a little, with rod prices now hovering at Tk86,000 per tonne.
"But it is very unlikely that the prices of the product will come down further due to the increase in VAT," Tapan Sengupta, deputy managing director of the country's leading rod-maker BSRM, told The Business Standard.
In the proposed budget, VAT in retail has been reduced to Tk200 from Tk500 per tonne. But the value-added tax in manufacturing has been raised to Tk2,200 from previous Tk2,000 per tonne.
"In the budget, Tk1,500 customs duty (CD) and Tk500 advance income tax (AIT) on construction rods remain unchanged. Therefore, rod prices are unlikely to drop in the coming months," Mohammad Jasim Uddin, senior general manager (Marketing and Sales) of KSRM Steel Plant Ltd, told TBS.
Besides, Jasim Uddin voiced some of his fresh concerns, such as difficult letters of credit (LC) opening for raw material imports owing to a dollar shortage in banks.
"The cost of importing scrap, raw materials and chemicals has gone up by Tk10,000-Tk11,000 per tonne due to Taka devaluation against the dollar. Rising gas prices are having a direct impact on production costs. Freight costs keep surging due to spiralling fuel prices in the global market," he added.
According to the latest market data, 75-grade mild steel rods were at Tk83,000 to Tk86,500 per tonne on Monday. The 60-grade auto rods were at Tk80,000 to Tk82,000 per tonne while semi-auto rods of the same grade were at Tk77,000 to Tk78,000 per tonne.
Steel manufacturers said the volatile rod market had paused many residential and other constructions, as sluggish demand has led to a decline in sales.
"Earlier, we used to supply 300-400 tonnes of rods every day across the country," said Mohammad Alamgir, a rod wholesaler in Chattogram.
"Now sales have come down to fewer than 100 tonnes. Housing construction has come to a standstill mainly due to the unprecedented price jump," he added.
Golden Ispat Director Sarwar Alam said demand has plummeted by around 50% thanks to the volatile market.
"At the moment, I do not see any possibility for the market turning around," he added.
According to the Bangladesh Steel Manufacturers Association (BSMA), Bangladesh's annual demand for mild steel rod is around 70-75 lakh tonnes, while sales are around Tk50,000 crore. The government earns Tk3,500 crore in revenue from the construction segment.