The construction sector is expected to realise relief with respect to steel prices this year after a two-year successive rally that inflated project costs, US based ratings agency Fitch has said.

Property developers say steel prices nearly doubled in 2021. For example, the cost of deformed reinforcement steel bars of type D10 surged from Sh1,000 per 12 metre roll to about Sh1,800.

“This meant that people building houses resorted to going to China to import most of the steel materials they needed for entire projects instead of buying locally,” says Kevin Kamau, a Ruiru based contractor.

Local steel producers such as Tononoka, Doshi, Accurate Steel and Devki who import most of their raw materials were forced to hike prices in line with a surge in global prices.

Global ease in prices

According to a manager at Accurate Steel Mills in Nairobi, the cost of construction was inevitably higher due to an upward surge in the cost of steel last year, hurting developers.

“The prices were increasing almost on a daily basis since the beginning of the year due to high raw material costs abroad,” Ramesh Bora, a sales manager at Accurate Steel said.

However, the forecast is that prices of steel may retreat in 2022 as the global rally ease, said Fitch Solutions in its latest price update.

That the price per tone is forecast to drop to $750 per tonne in 2022 from $950 (Sh107,900) in November 2021.

Steel accounts for over 15 per cent of the total project costs especially in housing projects and the ratio could be higher in infrastructure projects.

Reports indicate the price shock was caused by supply shortages arising from the Covid-19 containment measures and the global economic recovery.

Oxygen, a key component in the manufacture of steel was also diverted for medical reasons hence worsening the situation.

Fitch further says that on the supply side, Chinese steel production in 2022 is expected to rebound slightly following significant year-on-year declines from July-September as a result of the Chinese energy crisis that dented industrial production in order to reduce pressure on the power grid.

Fitch revised downwards Chinese steel production growth forecasts from 9 per cent year-on-year to 2.5 per cent in 2021 and from 7 per cent year-on-year to 5 per cent year-on-year in 2022.

“As government intervention in the coal sector has worked to ease the energy crisis in China, we expect steel production to start rebounding from the steep declines in the third quarter 2021,” the firm said.

Government projects

The prices in Kenya will also be influenced by the government infrastructure projects which increase demand forcing housing contractors to buy them at a higher price.

While ongoing projects and new public infrastructure projects will continue to buoy steel demand during 2022-2025, the firm did not expect the strong demand impact that had stemmed from an acceleration of government stimulus since April 2020 to support the country’s post-Covid recovery to return in 2022 onwards.

“With major construction projects reaching completion and the pipeline of new projects thinning with the Chinese Government focusing on tightening credit lines, Chinese steel demand from the construction sector is likely to weaken going forward,” Fitch said.