Price of construction material could witness significant hike next fiscal

KATHMANDU: The cost of construction material is likely to increase in the coming fiscal year 2015-16. Construction material such as bricks, sand, aggregates, cement and iron rods are not doing good business due to the government’s ban on construction till mid-July. However, it is anticipated that the price of construction material will rise by up to 40 per cent after the ban is revoked owing to high demand. A scarcity of construction materials is also likely to hit the market.

As per the Federation of Construction Materials Business Association of Nepal (FCMBAN), consumer will face a price hike of around10 to 15 per cent on cement, 10 per cent on iron rods, 40 per cent hike on sand and aggregates and the price of bricks will increase arbitrarily in the next fiscal with 25 per cent price hike in wages of workers. The announcement by the government to provide home loans to earthquake victims is expected to fuel massive growth in demand by mid-July to mid-September.

While the construction industry is now in a stagnant state with the imposed ban, the impact is being felt by  the construction material business.

Sales have been hit by as much as 70 per cent after the earthquake on April 25, according to the FCMBAN. “The demand for bricks  came to nil while the demand for other construction material such as cement, sand, aggregates and rods have been confined to 30 per cent as compared to the same period last fiscal year,” said Yubak Rajbhandari, President of FCMBAN. However, he added that the market is witnessing gradual momentum in sales since a week.

According to him, earlier April to June used to be the peak season for sales of construction material.

Providing the example of recent price hike in sand and aggregates, Rajbhandari said, “The price of sand per tipper was Rs 8,000 just a month ago. But with the gradual demand seen in market, the price has jumped to Rs 9,500 per tipper.” According to him, the government should plan ahead for probable demand and have a control mechanism on pricing for construction material.

“We have sufficient capacity to fulfil demand of cement. However, we will face a crisis for iron rods and bricks,” he asserted, adding that there could  be artificial scarcity and stipulation in price for bricks, sand and aggregates.

The brick industry faces nil demand after the earthquake. Earlier in mid-February, due to heavy unexpected rainfall green clay worth Rs one billion was destroyed and the earthquake further added woes  to brick producers this year.

As districts like Sindhuli, Ramechap, Dhading, Sindhupalchowk, Kavre and the valley are the most affected by the earthquake, the stock of bricks is confined to merely 100 million units.

“Viewing the current trend, we feel that the stock will be more than enough for reconstruction,” said Mahendra Bahadur Chitrakar, President of the Federation of Nepal Brick Industries (FNBI). He also stated that as the government will impose a revised National Building Code and By-laws, the demand for bricks will not see an increase till December.

Assuring that there will not be a scarcity of bricks in the market, he said, “If there is high demand, we will  bring in bricks from districts like Nawalparasi, Parsa and Janakpur.” FNBI has appealed to all entrepreneurs to trade in the prior set price even post earthquake. Earlier the price of bricks was set at Rs 14,000 to Rs 15,000 per thousand units. There are altogether 800 brick kilns operational across the country.

As the restriction on construction industry has had a multiple chain effect, entrepreneurs have appealed to the government to revoke the ban at the earliest.

With the ban on construction, the cement industry faces an 85 per cent dip in demand. “The government should work efficiently and considering the emergency should introduce a new Building Code and revoke the ban. If not it will create a negative impact on the whole economy,” said Dhurba Raj Thapa, President of Cement Manufacturers Association of Nepal (CMAN).

Citing that the cement industry can fulfil an extra 50 per cent demand, Thapa said, “Currently, we are operating our factories only at 50 per cent of installed capacity.” According to CMAN, the annual consumption of cement totals 4.5 million tonnes and there are 45 cement factories operating across the country.