The Hindu Business Line : ‘Drop in steel prices some relief, but not much’

Chennai, May 10 Steel prices are beginning to drop but the decrease is not likely to make a significant impact on construction costs for the end-consumer, according to real estate developers and engineering contractors.

Market information indicates that there could be some drop early next week but not much, they say.

In the case of construction steel, large steel manufacturers have dropped prices by about Rs 1,500 to Rs 2,000 a tonne, while the secondary players have dropped prices by about Rs 6,000-8,000 a tonne.

Manufacturers such as Tata Steel, SAIL and Vizag Steel have just begun to cut prices, according to industry sources.

Contractors say that the price of branded steel from these large manufacturers now ranges around Rs 50,000 a tonne. But the brands from such primary producers are not available in the market, according to contractors. Local players have cut prices more steeply and the products from these secondary producers are now available around Rs 40,000-42,000 a tonne.

Developers, while welcoming the reduction complain that that these are a marginal drop compared with the increase over the last one year when steel prices were around Rs 32,000 a tonne. It is doubtful if the end-consumer would get any benefit from the reduction in steel prices, they said.

Going by a rule of thumb, developers say that steel accounts for about one-fifth of the construction cost. They use about 4.5 kg of steel a square ft in residential buildings. For every Rs 1,000 a tonne increase in steel price, the construction cost goes up by Rs 5 a sq. ft. Steel prices have gone up by about Rs 18,000 over the last one year. The current drop in prices is at best about one-third of the increase. Primary steel producers have only cut prices marginally.

While there could be some reduction in cost of construction in the residential and commercial segments, large infrastructure projects that usually source steel from primary producers are yet to get much relief.

In the residential segment, developers say, that their margins have been severely squeezed over the last one year. They have not passed on the increase in input costs of steel and cement – which has increased from Rs 160 a 50-kg bag to Rs 250. The decrease now would be some relief to the developers.