It took a day for the price of re-bar to show a spike by more than a third of its value following the devaluation of the Birr by 15pc against a basket of major currencies, coinciding with the rise of scrap metal. Allegations of hoarding by retailers were next to follow, where the Trade Practises & Consumer Protection Agency temporarily shut down 21 businesses. And given that imports of re-bar are complicated with the shortage of hard currency, the market is now suffering from a scarcity of rebar, reports SAMSON BERHANE & YIBELTAL GEBREGZIABHER, FORTUNE STAFF WRITERS.
Under a sunny sky in the afternoon last Thursday, retailers, including a salesperson working for Afework Steel Retail Shops, sat idly in their shops around Megengna, unlike what has been the case a few months ago.
“I am running an empty shop,” said the salesperson, who sells imported and locally manufactured re-bar, faced with a business slowdown recently.
Supply has not been that big an issue for the salesperson who has been in the steel market for five years, before suffering from a shortage of re-bars recently. It has pushed him to turn down his loyal customers, such as contractors.
The crowd that once flooded the market became history in the past two weeks, as the acute shortage of reinforcement bars has driven customers away.
“Two weeks passed since I contacted importers as well as almost all local manufacturers to provide me re-bar. But they, unfortunately, did not,” said the salesperson, who pays 15,000 Br rent a month for his 30sqm shop.
A shortage of supply and higher prices are eroding profit margins of retailers and wholesalers in the rebar market, while demand remains unchanged.
The current price of 12-meter re-bar ranges between 195 Br for the eight millimetre thick ones and 1,000Br for the 20mm thick re-bars. They used to sell for 126 Br and 719 Br, respectively, before the devaluation of the Birr by 15pc against a basket of major currencies last October.
And in the areas where willingness to buy re-bar has shown significant growth, mainly as a result of a swell to the size of the construction industry, the product has become rare. From the total cost of a construction, 14pc goes into the purchase of re-bar.
“Worryingly, it is not even simple to buy reinforcement bars with higher prices for customers who are in desperate need of the product,” said the salesperson.
Such scepticism in Megenagna is usual.
Shortage of re-bar has hit the capital badly as uncertainty continues to prevail over the retail market. Stocks of re-bar have started to vanish from the major local markets of the capital.
The drop in supply of the product has triggered a lot of troubles in the economy as it plays a critical role in infrastructural development, crippling both small and large businesses as well as those whose livelihoods depend on it.
In many places, contractors have temporarily halted construction, whereas large and small-scale businesses have slowed down, as they could not do without re-bar.
“Our work schedule has been severely affected by the shortage,” said Berhane Kassaye, who is constructing an eight-storey building around Lideta Condominium. “It has been more than 20 days since we failed to get re-bar.”
The reality around Teklehaimanot, the most well-known retail market of steel located inside the most prominent open market of the city, Merkato, also serves as a microcosm of the severity of the problem.
As half of the retailers such as Tenaye G. Meskel have no adequate supply for sale, others closed, and yet another group stands accused of hoarding by contractors.
It was quiet in Tenaye’s shops last Tuesday where the tons of reinforcement bars that used to flood her shop were not in their usual place. Her employees, busy loading and unloading bars three months ago, were likewise idle.
“I am tired of telling my customers that I don’t have anything to sell,” she said, citing the shortage with the reluctance of the manufacturers to provide them with the product.
Besides taking almost three weeks to get the product, the amount of re-bar supplied to retailers by various manufacturers is not even enough to satisfy one- fifth of the demand, according to retailers Fortune spoke to.
“Given the existing demand, I doubt the amount we receive (50ql every three weeks) can stay for more than a week,” said Tenaye.
The researcher and academician with a four-decade experience, Abebe Dinku (Prof.), who has done various studies in the construction industry, believes there is no real shortage at all.
“Had the government tightly controlled the market, such a problem could have been solved earlier,” he said, pointing his finger at retailers that are allegedly hoarding the construction materials.
Endalkachew Tsegaye, public relations director of Trade Practices & Consumer Protection Authority, agrees.
“It is an artificial shortage created by individuals who are trying to take advantage of the uncertainty,” he told Fortune. “We know some manufacturers and distributors hoarding their product in stores situated in surrounding towns.”
Such fears and uncertainties are not new to the capital.
Back in October 2017, after the exchange rate adjustment, the reinforcement market was the first to respond.
Just a day after the devaluation, the price of re-bar portrayed a 35pc rise within the range of 12 Br to 86 Br depending on the grade. The price of 12-metre-long re-bar with eight-millimetre thickness spiked to 138 Br post the devaluation although its effect on the headline inflation of the country was minimal. It also coincided with the rise in the cost of scrap metal.
To make it worse, retailers in major markets of the area were unwilling to sell, instead choosing to hoard what they have in their stock, according to the Authority, which temporarily shut down 21 businesses engaged in retailing re-bar around Merkato, Megenagna and Abinet three months ago.
The problem is not only seen in the retail market but also with manufacturers that have not provided their products for almost a week after the devaluation.
Except for Steely RMI and Yesu Plc, the products of other manufacturers were hardly noticeable, although others started supplying after altering prices.
Another price adjustment followed over the past two weeks by all the rebar market players despite the government’s warning that it is not the right time to do as such as manufacturers are still using the raw material that they imported before the devaluation.
“The devaluation coupled with the rise in the price of raw materials such as billet in the global market prompted us to revisit our prices,” said Getenet Endazenew, marketing manager of Steely RMI. “Even under such conditions, we have increased prices by only around nine percent.”
Presently, there are 10 large-scale manufacturers that are producing 2.5 million tonnes of re-bar a year, accounting for one-tenth of their potential.
“Under such circumstances, it is possible to witness a shortage. Yet, I never expected this kind of market disorder,” said Solomon Mulugeta, general manager of the Association of Basic Metals & Engineering Industries. “It is the result of a shortage in scrap metals and billets – the major input used to produce re-bar.”
Over the past five years, reinforcement bar manufacturers have been producing 32pc of their actual capacity, as a study done to formulate a policy to design a national plan for the steel industry shows.
Sheba Steel Mill Factory is the first private company to open a reinforcement bar manufacturing industry in Ethiopia with an investment capital of 30 million Br. More than 230 small and medium factories involved in steel and iron production have joined the market since then.
With the increase in the number of market players in the industry, the gross value of the metal industry has shown significant growth in the past five years, displaying a fourfold bulge to over 23 billion Br. The total revenues of iron and steel industries meanwhile, including re-bar manufacturers, doubled to 3.1 billion Br in the same course of time.
Their success had not been short of drawbacks though. Besides raw material constraints, shortage of skilled workforce, the absence of policy frameworks and a lack of better technologies are the significant challenges to the industry, according to a study published by Adama Science &Technology University (ASTU) last year.
This obstacle coupled with the forex crunch that haunted the nation for the past half a decade deter the industry from contributing much to the economy, leading to the recent acute shortage.
Being one of the steel and wire rod manufacturers in Ethiopia, Steely RMI has a capacity of producing 360,000tn of steel and wire rods a year in its plant situated in Bishoftu, over 40Km from the capital.
It is not, however, producing as much as it can, primarily owing to the shortage of foreign currency.
“As forex is not easily accessible to import raw materials, we are not producing re-bar that is enough to satisfy the demand,” said Getnet.
As a way forward, the Metal Manufacturers Association recommended the government to give priority to metal manufacturers while allocating foreign currency to various sectors of the economy.
Previous trends indicate steel manufacturers need 6.6 million tonnes of billet annually. To buy this, more than 1.3 billion dollars, accounting for one-third of the country’s export earnings, is required.
Meanwhile, the International Monetary Fund (IMF), in its report published on January 12, 2018, signalled the forex problem is far from being solved. The reported showed that the international currency reserve has dwindled to cover only 1.8 months of imports.
The government, on the other hand, announced that export proceeds had shown an average increase of 26.5pc over the past two months in relative to the similar period last year.
In spite of all this, Tenaye, the retailer, is struggling to survive in the market.
“If the problem persists, it is going to be discouraging,” she commented.
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