A sharp spike in prices of steel and cement coupled with a rise in wages will likely push up the cost of key government-funded infrastructure projects in highways, railways and low-cost housing sectors. Officials in the ministries of housing and urban affairs and road transport and highways said contractors had approached the respective ministries to rework the costs, citing the price increase. Experts said the cost of new contracts could go up by about 15-20% “There is a steep impact of inflation on government infrastructure projects. I see that the input cost has escalated between 15-20%. For fixed price contracts, contractors are paying out of their pockets,” said Vinayak Chatterjee, chairman, national infrastructure committee, CII. While there is an inbuilt mechanism in government contracts for revision in costs of up to 10%, experts said that worked in normal situations but was unlikely to help in current times. Retail inflation hardened to an eight-year high of 7.79% in April, prompting a surprise rate increase of 40 bps to 4.40% by Reserve Bank early May. The Ukraine-Russia conflict had pushed input costs by as much as 25-30% gnawing into their profit margins. One of the officials quoted above admitted that contractors had requested for revision in costs, but so far there is nothing on the cards. “There have been no post contract negotiations. While concessionaires have been requesting it, this cannot be possible unless the government comes out with a policy for the same,” a senior official from the National Highway Authority of India (NHAI) said. Similar concerns were raised by realty developers working on the housing projects contracts under PMAY scheme. While they are struggling to contain the price, if the centre does not consider the rise in input costs, it could impact the quality of construction. “Realtors are reluctant to take contracts. There is a very thin margin in low-cost housing projects which are now under severe pressure. Apart from cement and steel, rise in wages cost is really hitting hard. Somewhere we must cut corners. We have flagged our concerns to the ministry,” said a realtor working for multiple PMAY projects. Rising prices have impacted the railways as well. According to an order from the Railway Board, the ex-plant listed price of a steel Channel (200×75 mm) rose to ₹69,000 per MT in April 2022 from ₹53,000 per metric tonne (MT) in September 2021. The cost of a Broad-Gauge Coaching Axle that is manufactured at ‘s Durgapur Steel Plant (DSP) has been revised to ₹72,338 a piece in 2022-23 from ₹62,887 a piece for financial year 2021-22. Pain points “For fresh projects there is no other way but to quote a higher cost, taking into account the hike in input cost,” Chaterjee added. A senior official in the housing ministry added that while there is no cost revision on the cards for existing projects, they are anticipating future contracts to be expensive. According to Confederation of Real Estate Developers’ Associations of India (CREDAI), an apex body of private real estate developers in India, at December-end cement prices were ₹325 per bag, which has since gone up to ₹400 and is expected to rise further, on account of high coal prices. Steel and cement account for an estimated 30% of the production cost in real-estate projects.

BEIJING, April 18 (Reuters) - China's crude steel output fell more than 6% in March from the same month a year earlier, data from the statistics bureau showed on Monday, as production at mills was crimped by COVID-19 outbreaks and environmental restrictions. The world's top steel producer made 88.3 million tonnes of the metal last month, down from 94.02 million tonnes in March 2021, said the National Bureau of Statistics (NBS). Average daily output in March stood at 2.85 million tonnes, according to Reuters calculation based on the NBS data. That was down from 3.03 million tonnes in the same month last year but up from 2.68 million tonnes in January-February. Production curbs at northern steel mills that aimed to cut pollution and improve air quality during the winter heating season and Beijing Olympics were planned to end in mid-March, after being implemented for around half a year. However, the recent COVID outbreaks in the country have put a dent in both steel production and consumption. "One of the biggest restraint on production is that the COVID-related restrictions hinder steel mills from replenishing raw materials," said Tang Binghua, an analyst with Founder CIFCO Futures in Beijing. China's steel hub Tangshan city issued a temporary lockdown in late March after detecting several locally transmitted cases, forcing plants to cut production due to the disruption. Furthermore, a lockdown in Shanghai following the worst COVID wave since the initial Wuhan outbreak of coronavirus also hampered downstream steel consumption, which typically peaks during the March-May period. Meanwhile, increasing steel scrap prices - also partly resulting from disrupted transportation - squeezed some producers' profits and forced them to reduce output, according to analyst Tang. In the first quarter, China churned out 243.38 million tonnes of steel, down 10.5% from 271.04 million tonnes the same period a year earlier, the statistics bureau data showed.

The prices of steel building products surged in March due to the impact of the war in Ukraine and ongoing energy price volatility. Building’s updated Trends and Prices Data Dashboard shows the Office for National Statistics price indices for concrete re-enforcing steel bars increased 31.6% in March compared to February. Fabricated structural steel also shot up in March, rising 19.2% month-on-month. Simon Rawlinson, head of strategic research and insight at Arcadis, said increases were “largely explained” by the Ukraine war and the subsequent disruption to energy markets. He added: “Furthermore the loss of access to Russian and Ukrainian raw material and semi-finished product markets will have deprived manufacturers of access to long-term stable supply chains and price agreements. “Over and above the issue of very high prices, the other issue for the industry is the lack of price certainty that contractors can access through the materials supply chain, which is increasing risk for both clients and contractors.” A spokesperson for the Construction Products Association said steel products are more directly affected by the Ukraine war than other products as 13% of UK imports of steel construction materials come from Russia and Ukraine, compared to 1.2% of all UK products. He said: “Steel-related products are commodities so the spikes in iron ore and steel prices will have also affected steel products. “Plus, steel construction materials are energy-intensive and energy costs account for between 25% and 33% of total costs for energy-intensive manufacturers so the recent sharp energy cost rises also contribute to the sharp price rises.” The surge in March significantly accelerates an existing trend for rising steel material prices, with concrete re-enforcing steel bars and fabricated structural steel increasing 63.6% and 54.7% respectively in the 12 months to 31 March, the highest of any building material.

Demand for steel is expected to grow by around 10% through 2022 amid the government's continued focus on the construction of roads, railways, ports and airports, according to Moody’s Investors Service. On the trade front, as per the report, India's steel exports will continue to remain strong in the coming months as higher prices and regional demand motivate steelmakers to divert part of their production to exports. Input costs have been on an upswing owing to the Russia-Ukraine war & companies have been wary of the higher raw material costs gnawing into their margins. Steel prices have been no stranger to this phenomenon. The prices of iron ore and coking coal, two key components of producing steel in the commonly used basic oxygen furnace (BOF) method, have surged recently and are expected to stay elevated as the conflict further tightens supply. Moody's has opined that steel makers with higher self-sufficiency in raw materials are currently better positioned. For example, Tata Steel & JSW Steel have either complete or high self-sufficiency in iron ore for their Indian operations. These two companies are more shielded from these risks given their backward integration into the production of key steelmaking inputs, it said. Tata Steel remains exposed to volatility in its Europe and Southeast Asia operations, which are not backward integrated. In Europe, structural improvements in its manufacturing processes and plant upgrades have helped streamline some costs but the lack of backward integration and volatile input and end-product prices will remain a key sensitivity, as per the ratings agency.