Industries feel the heat of global raw material price surge

Skyrocketing prices of industrial raw materials on the international market are going to cause a severe strain for the country's industries, with the cement, steel and consumer goods sectors already feeling the heat, stakeholders say.

Falling sales already show signs of the impact of the surging prices on the domestic market with an overall impact on the whole economy.

The country's cement factories are losing Tk300 crore every month because of rising prices of raw materials in the international market, mentioned Mohammad Shahidullah, first vice-president of the Bangladesh Cement Manufacturers Association (BCMA).

"There is no possibility of prices coming down to a tolerable level before 2022.

Much to the concern of industry owners, produced goods are piling up at warehouses as sales have tapered off in the wake of rising prices of various products.

As a result, many factories are reportedly being forced to reduce production.

Stakeholders say if prices continue to rise abnormally and consumers prefer to keep their purse strings tightly closed, many industrial factories will cease production.

"If this situation continues, 30% of the cement factories will be closed," said Mohammad Shahidullah.

Steel scraps – one of the most important raw materials of the steel industry – are selling for Tk50,000 per tonne in the local market, up by Tk20,000 compared to a year ago, which has led to a significant rise in steel price at the consumer level.

Speaking on this, Shahriar Jahan Rahat, deputy managing director of steel manufacturer KSRM, told The Business Standard consumers would be forced to reduce costs once expenditure pressures increase. "This will leave an adverse effect on the economy."

Abul Bashar Chowdhury, chairman of BSM Group, told The Business Standard although prices of a number of commodities such as edible oil, wheat, sugar, and lentil have risen sharply over the past three months, the import and supply of consumer goods is sufficient compared to the domestic demand.

The importer, however, said there is no possibility of a fall in prices of daily necessities in the domestic market soon if the international market does not return to a tolerable level.

Prices of a variety of commodities and industrial raw materials have continued to skyrocket in the international market as demand outpaces supply following the relaxation of pandemic-induced restrictions across the world.

Prices of various commodities have ticked up as high as 2-3 times over the past three months as improving economy and pent-up demand are straining distribution channels for raw materials and other goods in the international market, stakeholders said, adding importers are also paying more for shipping as fuel costs rise and ports experience longer delays because of congestion.

All these factors have contributed to a volatility in the prices of commodities and raw, they added.

Economist Professor Dr Mainul Islam said the entire world is now facing an energy crisis. "The present inflation is a result of countries around the world trying to recover from economic shocks induced by the coronavirus pandemic.  They have taken various initiatives for economic expansion.

It is very unlikely that the situation will normalise soon, he added.

One of the leading business conglomerates in the country, PHP Family comprises over 30 companies that are operating in diversified business sectors such as flat steel, long steel, float glass, aluminium, textiles, power, petro refinery, financial services, agro, automobiles and others.

But they are apprehensive about the adjustment in production and sales prices due to the recent abnormal rise in prices of corrugated iron raw materials in the international market.

Mohammed Amir Hossain Shohel, managing director of PHP Industrial Park, told The Business Standard, "LPG prices have increased abruptly within a short time. We need thousands of cylinders [of LPG] every month. So the price hike will increase our production costs."

In the same way, the price of HR Coil, the main raw material of corrugated iron sheet, has increased from $400 to $1,200 per tonne within two years. The price of phosphoric acid has increased from Tk190 to Tk430 per kilogram within six months, he added.

"We are anxious about the global stagflation and cautiously observing the global market situation. We are also observing the purchasing capacity of our target customers.

"We are passing through a challenging time. But we are not breaking down. We have invested thousands of cores of taka and want to overcome the situation for our survival. We need support from policymakers to overcome the present situation," Mohammed Amir Hossain Shohel continued.

The industrialist also pointed out that rising production costs are hurting the purchasing capacity of people and demand in the market is seeing a downtrend.

If the crisis intensifies, sales may collapse, he added. 

Mohammad Mohsin, vice chairman of the PHP Family, said, "It seems businesses in the country are going to land in a crisis. There is no demand for products in the market but their prices are on the rise. Moreover, the taxation is high. 

"We become stressed when production costs increase leading to declining sales. Piled up products will lead to stagnation."

Mohammad Mohsin, vice chairman of PHP Family, suggested formulating a specific roadmap and guidelines in joint collaboration with economists, policymakers, and businesspeople to tackle the situation, at least for the pandemic period.

Dr Mainul Islam, however, said it was not yet time to adopt a new plan. "We will have to wait for it. On the one hand, it is a sign that the world economy is emerging from the brink of collapse and on the other hand, it is an energy crisis. It should be addressed by well-thought-out planning."

Steel industry

At present, per tonne of scrap steel is being sold in the domestic market at Tk50,000, which was Tk30,000-32,000 a year earlier.

Shahriar Jahan Rahat of KSRM said the Covid-induced disruption of the supply chain has created a congestion in raw material imports.

It is not possible to clear the congestion quickly, he observed, explaining, "When a continuous supply chain remains shuttered for a long time, many products are stockpiled. The number of ships is the same as before. It is also not possible to transfer goods by doubling the number of ships to reduce congestion."

Mentioning that congestion in imports has left a negative impact on all industries, he said, "Production has slowed down. Rising prices will never be good for anyone. Product prices must come to a tolerable level, or else the overall economy will slow down.

"When the price of steel was Tk40,000-50,000 per tonne, people could build easily. Now the price has increased to Tk72,000, which is why one cannot build a house if one wants to. It will have an adverse effect on the economy."

Cement

Prices of cement clinker and other raw materials as well as shipping cost have gone up by $20 per tonne over the last three months due to rising prices in the international market.

Three months ago, a 50kg bag of cement was sold at Tk420 in the domestic market. Now it is being sold at Tk450. The manufacturing companies are incurring a loss of around Tk40 per bag of cement.

Bangladesh has a monthly demand of 40 lakh tonnes of cement, said Mohammad Shahidullah, first vice-president of the BCMA.

He added that the cement clinker is made from coal. The price of coal in the international market has increased by about 50% over the past three months. As a result, the price of cement raw material has also increased.

In addition, international shipping cost has increased by 50%. On top of this, the supply of goods is being disrupted.

Consumer goods

High prices have also hit the consumer goods market.

In the last three months, the price of edible oil has gone up by Tk34-42 per litre.

In Khatunganj, a large wholesale market for consumer goods, bulk palm oil is currently being sold at Tk122 per litre, palm super oil at Tk124 and soybean at Tk132. Three months ago, per kg of sugar was sold at a wholesale price of Tk61, while it is now being sold at Tk76.

At present, per kg of Canadian wheat is being sold in the market at Tk39. Three months ago, the product was sold for less than Tk27 a kg.

Three months ago, per kg of imported lentils were sold at Tk55-58. At present, lentils of the same quality are being sold at Tk82-84 per kg.

Regarding the price hikes, Abul Bashar Chowdhury, chairman of BSM Group, a consumer goods importer, said prices of most consumer goods have risen abnormally in the international market. For example, he said, per tonne of palm oil is now being sold in the international market at $1,200, which was $450 three months ago. Similarly, the price of wheat has surged from $265 to $455 and that of lentil has surged from $550 to $950 during the period.

In addition, the US dollar has become costly and the sharply risen shipping fares have led to an abnormal price hike in the consumer goods market.

LNG

Price hike of Liquefied Natural Gas (LNG) has also created an energy supply crisis as well as financial pressure on the government as it imports LNG at record price.

The skyrocketing LNG price also increases different products' costs including electricity.

Two months back, LNG price in the spot market was hovering near $13-15 per mmBtu.

But, for October, Bangladesh bought two liquefied natural gas (LNG) cargoes at record prices.

Petrobangla, a state-owned national oil company responsible for exploring, producing, transporting, importing and selling natural gas, bought one cargo from trader Vitol for delivery in mid-Oct. at $35.89 per million British thermal units (mmBtu) and another from Gunvor for late Oct. delivery at $36.95 per mmBtu.

The first cargo will reach Bangladesh soon and the delivery of the second one is under process, said an official at Petrobangla.

However, the government has yet to decide whether it will buy more cargoes in November.

However, the government will buy LPG from the spot market even if the price is higher than what it is now to meet the industrial demand, said a source at Petrobangla.

Meanwhile, government subsidies of LNG are going to be high due to the wild price hike in the global market.

At the beginning of this fiscal year, Petrobangla predicted that around Tk9,000 crore would be needed as a subsidy, but now they are worried that the figure could cross Tk12,000 crore.

Shahadat Hossain Chowdhury of TBS Chattogram Bureau contributed to this report