Real estate projects to feel the pinch as steel, cement prices rise

May 4,2021

An increase in prices of raw materials — steel and cement — could cast a shade on the construction cost of highways as well as real estate projects.

An official at the National Highways Authority of India said, “In the case of roads, a majority are being made on bitumen. Therefore, there won’t be an impact on costs but as far as bridges are concerned there will be a huge impact because they are built on cement and steel.” However, the official did not provide the estimate of cost escalation and said it would differ from one case to another.

The Ministry of Road Transport and Highways charges a 10x toll rate for major bridges and structures under its tolling policy.

According to estimates, the current cost of road construction per km for Bharatmala is Rs 15-20 crore. This suggests an average cost of Rs 150-200 crore a km. However, some experts say the structure costs vary widely, depending on design choices. Bridges could be cable ones or vary, depending on terrain like those in the Himalayas, where costs are very high. Jagannarayan Padmanabhan, director and practice leader (transport & logistics), CRISIL Infrastructure Advisory said, “Infrastructure and road projects would be at various periods of construction and hence for a project which is in its early stage of construction the impact would be higher and this would be in the range of 10-15 percent.”

Not just road projects, real estate projects are staring at cost escalation. Niranjan Hirana¬ndani, managing director, Hiranandani Communities said, “Construction costs have gone up 4-5 percent due to rise in steel and cement prices.”

Some realty companies, however, say the impact would not be much. “Since their selling price is Rs 15,000 to Rs 18,000 per square foot, an increase of Rs 100 to Rs 150 due to an increase in steel and cement is not an issue for them,” said Kamal Khetan, chairman, Sunteck Realty.

The price of steel is estimated to have gone up to Rs 65,600 per tonne from Rs 35,000 last year while the cement price has increased to Rs 420 a bag from Rs 280.

According to an India Rating report, domestic hot-rolled coil (HRC) prices in Mumbai of 2.5-8mm grade increased by 17 percent month-on-month and 66 percent year-on-year in mid-April 2021 to Rs 63,400 a tonne. Domestic flat steel prices have increased due to bullish trends in the global HRC market and strong end-user demand. High export realizations and a low risk of imports over the near term are likely to keep prices high. However, prices could face temporary headwinds due to the second wave of the pandemic. Similarly, domestic rebar prices were at Rs 53,000 in mid-April 2021, Rs 3,500 higher month-on-month.

International rebar prices have increased substantially with Chinese rebar prices at $890 in mid-April 2021, $145 month-on-month higher. Construction firms are supposedly alleging that cement firms have formed a cartel and have been hiking prices. They are blaming the government for not protecting the interests of the industry and the public.

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