As spiralling costs of building materials threaten to bring the heyday of the construction industry to a close, consumers are for now bearing serious budgetary ramifications, Mona El-Fiqi reports Steel, cement and brick prices have witnessed unprecedented price hikes during the past few weeks. The price of steel reached LE4,800 per tonne on 4 January, compared to LE3,700 in November 2007. Cement prices rose from LE330 to LE420 per tonne during the same period, while brick prices increased by 52 per cent in January, registering LE280 compared to LE180 per thousand brick in December 2007. The surges in costs of these essential building blocks of the construction industry have directly impacted consumer housing unit prices. Steel prices began to rise steadily at the start of 2008 with weekly price hikes. On 12 January, Ezz Steel company, whose output accounts for 60 per cent of the total local market production, announced that the increase in steel prices was due to the unprecedented increase in the cost of pellets, the raw material used in manufacturing steel. According to Ezz Steel, global pellet prices have risen by $53, reaching LE293 in October 2007. The company concurrently raised its steel price by LE235, to reach LE3,619 per tonne (the factory price) starting January 2008. Experts believe, however, that the recent price hikes are unjustified, since the profits gained by steel factories can cover the rise in pellet prices. Ezzat Maarouf, former vice-president of the Arab Union for Iron and Steel, explained that even though pellet prices rose by 25 per cent, the prices of other raw materials used in steel manufacturing -- such as electricity and labour -- have remained constant. "It is unfair to sell consumers steel at LE4.8 per tonne when the cost price does not exceed LE2.2 per tonne," Maarouf said. According to Maarouf, steel manufacturers raised prices from LE1.87 per tonne of steel in 2003 to LE4.8 per tonne in 2008. As for cement, there was no clear reason for the rise in cement prices from LE330 to LE420 per tonne in February 2007. Maarouf said that a committee formed to determine the cost price of cement in 2007 put the price at LE200 per tonne. The committee reported that LE330 per tonne should be the maximum asking price, but cement producers continued to raise prices anyway. In reaction, the Ministry of Trade and Industry presented a request to the Egyptian Competition Authority (ECA) to study the cement case to determine whether there are any monopoly transgressions. The latter concluded that cement-producing companies raised prices unjustifiably to control the market, which led the prosecutor-general two weeks ago to refer 20 cement company officials to the criminal court for colluding together to raise prices. The ECA is currently working on a study to investigate acts of monopoly, which, according to Ibrahim Abdel-Rahman, ECA's press officer who spoke to Al-Ahram Weekly, is expected to be released soon. Meanwhile, the brick prices situation leads us to a different story. Following a government decree on 1 January 2008 that raised the price of fuel -- an essential element in brick manufacturing -- from LE500 to LE1,000 per tonne, brick prices have risen by 52 per cent. In the meantime, as the prices of the construction sector's three main inputs have swelled, other expenses related to the industry, such as accessories, wood and workers fees, have multiplied. More importantly, the cost of housing units has risen out of proportion, with a dire impact on low-income individuals. Minister of Housing Ahmed El-Maghrabi announced that the increase in construction materials cost would not affect the beneficiaries of the national housing project. He said the ministry is committed to covering the additional expenses of housing units in order to keep them at reasonable prices for low income citizens. According to El-Maghrabi, the ministry submitted a report to the prime minister prodding the government to pay its debts to contractors to enable them to continue their operations under these circumstances. Moreover, the Housing Ministry recently formed a committee to come up with solutions to face the high prices and to avoid the negative impact on millions of workers in this sector. For now, construction companies and contractors are unsure of their ability to continue working under such unfavourable market conditions. Samir Abdel-Aziz, a civil engineer and owner of a private construction company, said that marketing is becoming difficult for their units since consumers are no longer able to handle the price increases. His company will need to minimise its profit margin to keep its business afloat. "It is expected that 2008 will witness a slowdown in the construction sector," Abdel-Aziz said. According to Abdel-Aziz, the major problem is that companies had signed project contracts months ago at the old prices which they are now required to fulfil under current prices. At a meeting of the Egyptian Union of Construction Contractors on 15 January, contractors said some companies had announced their bankruptcy and others are facing great losses. The meeting recommended that the government compensate contractors that are currently implementing government projects to help them fulfil their contracts. In an attempt to control steel and cement prices, the government decided to impose additional export duties estimated at LE160 per tonne of steel and LE65 per tonne of cement since February 2007. The decision aims at directing most of the production to the local market in the hope that an increase in supply will bring prices down. Moreover, the Ministry of Trade and Industry recently approved the issuing of licences to eight new cement production lines and four steel factories to increase local production to meet local market needs and help in reducing prices. Nevertheless, experts believe the government's efforts have not been fruitful. Hamdi Abdel-Azim, a professor of economics and former president of Al-Sadat Academy for Administrative Sciences, said steel and cement factories were making high enough profits to cover the increase in their costs of production. Experts think that the culprit is also the many loopholes in the current anti-monopoly and competition law, which helps producers raise prices without serious action being brought against them. Abdel-Azim said the law should stipulate the prohibition of a large market share for one product or one producer. He gave an example, saying one company in Egypt produces 60 per cent of the total local steel production. "The law should be amended to set a maximum ceiling for any one company's share that does not exceed 40 per cent, even if the producer is a merger," Abdel-Azim said. Experts said the legal fine imposed is insignificant, normally ranging between LE3,000 and LE10 million. It is Abdel-Azim's opinion that the fine should be raised to a maximum of LE50 million, in addition to the confiscation of the total value of sales of a company for the period during which it is proved that the company committed monopoly acts. Moreover, Maarouf blamed the government for not applying the law. Item 10 of the law stipulates that the prime minister has the right to interfere and set a reasonable price based on the cost price with an acceptable profit margin and that the government should use this right in the steel case. Finally, Maarouf said that transparency is key. Consumers have the right to know the cost price of a product and producers should publish their annual budget in newspapers to inform consumers of the cost price and to give experts the chance to discuss the issue based on accurate figures.
