Daily InsightsLand Use and Property Rights

Steel shortage to Decrease Construction Activity

By 20/01/2023 0 Comments

The construction industry is one of the primary industries developed by mankind. The sector plays a significant role in the economic development of the country. Almost every other business depends on the construction industry for its accommodation, plants, and infrastructure. The construction industry contributes around 2.5% to the country’s Gross Domestic Product (GDP) and employs 7.6% of the country’s labour force. With an annual growth of 14.4%, the sector is a stimulant to over 42 ancillary sectors, including steel, cement, bricks, aluminium, cables, fixtures, glass, kitchen and bathroom fittings, marble, and paint, ceramic tiles, transportation, warehousing, and wood.

Among all the sectors, the steel industry is considered a fundamental aspect of the construction sector. Last year, the walk-in steel prices caused the cost of constructing a house to increase from 8% to 10% as steel bars hold a 40-45% share in the total construction cost of such developments, which has decreased the overall construction activity in the country. Similarly, the ongoing shortage of dollars and the industry’s inability to secure Letters of Credit (LCs) to import raw materials is expected to hit the profitability of the construction sector.

The domestic steel industry, especially the graded steel (high quality) industry, heavily depends on the imports of scrap (for the production of long steel) and Hot Rolled Coil (raw material for flat steel). In such circumstances, there will be a shortage of raw steel materials which will have a multiplier effect on the domestic construction industry. With steel bars in the country, construction activity will avoid hurdles, decreasing demand for cement and 40 other sectors (such as glass, tiles, cables, PVC, pipes, appliances, wood and furniture, clay, bricks etc.).

Therefore, to avoid the looming fallout in the housing and construction supply in the country, experts believe that these industries should be allowed to open LCs on a quota system based on the offtake of the prior year. However, for exporters, LCs for the import of raw materials should be offset against export revenues.

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