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Fixed prices push ship breakers into tight corner PDF Print E-mail
Sunday, 27 April 2008

Agency

Government curbs on prices of construction materials have rattled businessmen, especially ship breakers, who run the risk of losing profit due to the "controversial" decision.

In the wake of spiralling prices, the government had fixed the prices of plates at Tk 52,000, 40-grade MS rod at Tk 60,000 and 60-grade MS rod at Tk 62,000 per tonne.

The ship breakers now complain that the decision has forced the businessmen into a tight corner and set off shocks in the $1.5 billion market. Output is slowing.

The ship breakers and re-rolling millers blame cuts in rod output on the rising prices of scrap ships on the world market. Scrap ships were priced at $500 per tonne of light displacement tonnage a year ago on the international market—a rate that shot up to a new peak of $760, Zafar Alam, former president of Bangladesh Ship Breakers Association, told bdnews24.com.

The business leader said the government had repriced plates and rod without taking into account fluctuating prices on the world market. Leaders of the associations of ship breakers, steel millers and re-rolling mills owners seek to set the prices of plates at Tk 56,000 per tonne, 40-grade rod at Tk 64,000 and 60-grade rod at Tk 70,000.

The proposal for higher prices was made by a committee formed in coordination with the Federation of Bangladesh Chambers of Commerce and Industry. The ship-breaking sector accounted for 90 percent of rod output in the country five years ago, but the intake came down to 40 percent as the import of scrap ships slowed. Skyrocketing prices are the result of a huge gap between demand and supply of steel on the world market, businessmen said.

Those who had bought ships for scrap before the government fixed the prices could supply plates at the reset prices, but buyers of scraps at the current rate will lose out to their competitors, Zafar said.

The fixing of prices does not work anymore. A tonne of 40-grade rod was sold at Tk 64,000 Thursday—up from the government's rate of Tk 60,000, Shibu Sen, manager of Nazrul Traders in Sholo Shahar in Chittagong, told bdnews24.com. Buyers paid as high as Tk 74,000 for 60-grade MS rod per tonne. "It's difficult to find rod at mills.

Even if rod is available, millers do not give money receipts," Shibu said. "The situation worsened after the government fixed prices of rod." MI Khasru, chief executive officer of real estate company Sanmar Properties, told bdnews24.com that rod prices had climbed by 63 percent in the past few days putting construction industry at risk.

The price hike slowed construction business and sales of apartments. Khasru said there was no scope to make up for the losses as it was impossible for developers to increase the prices of sold-out, yet under-construction apartments. Rod traders alleged scrap ship importers and re-rolling mills operators had created an artificial crisis to hike prices. Zafar denied the allegation. Signs of slumbering business are rife.

The bdnews24.com correspondent found 29 scrap ships lying on shipbreaking yards in Bhatiary on Swandip Channel. Of them, 16 weighing 1.32 lakh tonnes each were bought at prices between $600 and $ 700 per tonne of LTD. The rest of the ships weighing 1.4 lakh tonnes each were bought for more than $700 per tonne of LTD.

The government Tuesday formed a committee to find out the reason for a hike in the prices of MS rod. Housing and public works secretary ASM Rashidul Hai heads the seven-member committee. Bangladesh has demand for 2.5 million tonnes of MS rod a year. More than 80 percent of mostly non-graded or low quality rods are supplied by the country's re-rolling mills.

The $1.5 billion market is growing at a double-digit rate in a country rivalled by two other shipbreaking giants in South Asia: India and Pakistan. The scrap metal business has been driven by growing demand in South Asia for low-grade steel, primarily in the form of ribbed reinforcing rods used in the construction of concrete walls.

The rods can be locally produced from ships' hull plating by small-scale "re-rolling mills". The shipbreaking industry in South Asia took about a decade to mature. The boom began in the region in the early 1990s after some countries of East Asia pulled back from the business. Roughly, 90 percent of the world's annual crop of 700 condemned ships now end their lives on the beaches of Bangladesh, India and Pakistan.

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