The steel industry is facing another moment of interesting challenges. As everyone is now aware, HE President Uhuru Kenyatta has recently introduced lockdown measures to curb our greatest challenge yet, as the third wave of the Covid-19 pandemic rages on through our economy. Exactly a year on, and we find ourselves in almost the same position from lockdown measures as we did in March 2020, although against variants of this virus which now evolve and cause a greater risk than ever before. We encourage everyone to continue to take care of themselves and their family and follow all preventive measures possible to ensure that we beat this new challenge to our lives and economy.
As we shift focus to the global steel market, there are several new challenges that you would have undoubtedly read about in the news which affect our day-to-day local market. In summary, here are the main points:
- The Suez Canal Blockage – the main piece of news dominating media outlets for the last few weeks was a gigantic ship which was beached in the Suez Canal, a passageway where roughly 10% of the world’s sea traffic moves through. Whilst it predominantly affects trade from Europe, there is no doubt a knock-on effect with the backlog of ships which experienced roughly 1-2 weeks additional sailing time on their regular journeys. Estimates put the costs during this period at roughly $4bn per day.
- Container and Ship Shortages – leading on from our primary point, the most notable issue we have seen is a huge shortage of vessels and containers available for transport of goods and raw materials. This affects all industries, not only in steel, but in the overall economy. Industries now face freight charges roughly 3x the rate being booked within 2020.
- China and the rebate problem – as everyone is aware, majority of the steel exported into the country from China has been hugely affected by a rebate issue. To put it simply, the Chinese government used to incentive export of steel globally by issuing local businesses with a 13% rebate on sale. This rebate is to be reduced drastically, and although not confirmed yet, indications show that it may fall to as little as 4% or be removed altogether.
The aim of highlighting these issues which we are faced with today is simple: cost. The costs of locally manufactured items in steel (whatever the material, be it aluminium, mild steel etc.) will increase drastically. One can reasonably expect that the costs of all these challenges will be passed on to all manufacturers buying materials with costs soaring.
Therefore, as advice on how to position yourselves with steel purchase for whatever purpose, we believe that the costs will continue to rise with each passing month. So do not let yourselves or your project be caught in the trap of expecting prices to fall or correct in a market that is going to continue to remain very tough throughout the year of 2021.
– By Avraj Bhachu, General Manager, Accurate Steel Mills Limited, Nairobi, Kenya
