Rod price can be reduced at consumer level: Tariff Commission

It is possible to bring down the prices of MS rods at the consumer level, said the Bangladesh Trade and Tariff Commission, as the prices of scrap –the raw material for manufacturing the construction item – have seen a steady drop in the international market for the last few months and the dollar market has stabilised.

For this, the commission has suggested adjusting local prices by monitoring the international market of the material.

A Tariff Commission report obtained from the commerce ministry has provided details on the import of raw materials, the production of MS rods and the market condition.

However, rod manufacturers in the private sector say that due to various reasons, such as disruption in raw material imports caused by a dollar crisis and an increase in production cost for gas shortage, the time has not arrived yet to reduce rod prices.

According to the commission's report, the average import price of scrap was $590.75 per tonne in June and the rate dropped to $521.29 in September. That is, the average import price has decreased by 11.5% in four months.

An adjustment of prices can reduce the cost of production by 7.5%, it added.

The dollar rate has also eased. The exchange rate for import bill payment was Tk108-112 per dollar in June, which has now come down to Tk101-105.

Taking these factors into consideration, it is currently possible to reduce the prices of MS rods, the report added.

According to data from the Trading Corporation of Bangladesh, 60-grade rods are currently selling at Tk85,000 to Tk93,500 per tonne in the local market.

Although 60-65% of the production cost is spent on scrap, the private sector importers say the local market is unlikely to receive a positive impact from the scrap price drop.

According to importers, local rod manufacturers get a 360 days credit facility against letters of credit (LCs) from offshore banks against the import of raw materials. That is why the raw materials that are now available at local producers were imported when the dollar exchange rate was Tk84. And due to the loan facility, the importers have to make their import payment at Tk106 or more per dollar. That is why the cost is not decreasing.

As per the commission's report, raw materials of lower prices would enter the country in November.

Md Shahidullah, managing director of Metrocem Ispat and secretary general of Bangladesh Steel Manufacturers Association, told The Business Standard, "The scrap price has come down, but we are not able to take advantage of it. Due to the 360-day loan facility against LCs, we have to pay at an additional rate of dollars. Again, maybe banks can open just one LC against every 10 approaches made by importers due to a dollar crisis."

Due to these reasons, he said, the import of the raw material has decreased by 50% and the companies are now producing rods using raw materials which were imported earlier.

"But we will not be able to provide sufficient supply during the peak season of the product in January-February because of a shortage of the raw material. So, we will have the same cost of production," he added.

He said that although the electricity problem has been solved to a large extent, the gas crisis remains. Due to this, industries are still running at 20-25% lower capacity. It is also a reason behind the increase in the cost of production.

The commission report has also revealed that due to the inability of the mills to run at full capacity, the production cost has increased and the supply has shrunk.

Currently, the annual local demand for MS rod is seven million tonnes against the local production capacity of nine million tonnes. And a few of the country's largest mills meet 50% of the production.

According to a survey by the Bangladesh Competition Commission, the market share of four major companies in terms of production is 33.65%.

Abul Khair Steel tops the list with a 15.86% market share, followed by BSRM at 11.67%, KSRM at 3.65% and GPH Steel at 2.47%, it added.

The Tariff Commission report has revealed that big companies have a greater role in increasing the price of MS rods.

The prices of MS rods of weaker brands are not increasing as compared to the way that the stronger brands in the market are increasing their prices, it said, adding that in terms of the ex-factory rates, the retail price varies from Tk5,000 to Tk8,000 per tonne.

In Bangladesh, 60% of steel is used in government works, 25% in households and 15% in commercial constructions.

Although the import price of scrap has decreased, its relation in the local market is the opposite. Due to this, consumers are suffering in general. Due to this, if the import price can be properly adjusted, consumers will benefit.

According to the Tariff Commission report, importers pay 44% duty and an advance income tax of Tk500 against each tonne of billets – an intermediate raw material for rod production. However, the local industry has been protected by imposing an 89.32% duty on rod imports.

But businesses have to pay a specific duty of Tk1,500 and advance income tax of Tk500 per tonne for bringing in scrap. Besides, the minimum income tax rate at the sales level of rods is 2%. Advance income tax and sales stage income tax rates on these raw materials are not adjusted.

Whether the businesses have profit or loss, this tax has to be paid, which in many cases cannot be adjusted to the profit of the businessmen.

For this reason, the commission has recommended a reduction of advance income tax on scrap imports from Tk500 to Tk300 and sales tax from 2% to 1%. At the same time, it has also been recommended to monitor the market price of the manufacturers to see if the prices of raw materials that would enter the country in November are being adjusted.

Apart from this, the commission has also recommended maintaining the supply of gas and electricity to keep local production stable and making it mandatory for the producers to inform the government before changing the price of their products. It has also recommended monitoring to bring down the cost of production considering the price of raw materials.

On 30 August 2022, a meeting held at the commerce ministry with the minister in the chair reviewed prices and market conditions of daily necessities.

At the meeting, the Tariff Commission was tasked with reviewing the local and international markets of the products, including rods, cement, edible oil, sugar, and lentils, where there is instability in the market price. According to this decision, the report has been prepared.