Contractors blame steel companies for rise in steel prices

Steel bar costs Nu 80 per kilo, and a truck load of it costs Nu 960,000

With steel bar prices having been on the rise since the beginning of this year, many contractors are attributing the reason to the merging of four steel companies in Pasakha in Phuentsholing.

A contractor in Changzamtog, Nima Tshering said, “The merging of steel companies into one company is not the best thing because it creates a monopoly and does not allow us to filter or see the prices and choose the one that offers the product at a lowest price. Instead we are forced to buy at any cost that they claim because there is no competitive market.”

Another contractor in Thimphu said they have no choice but to buy from them because they are the price makers with complete control over the supply side in the market.  

“It’s good if the prices are reasonable, but if they are excessive, we don’t have any other options,” he said. 

Steel bar costs Nu 80 per kilo, and a truck load of it costs Nu 960,000, according to Gangkhab – Bhutan Building Materials, which is one of the steel wholesalers in Thimphu.

“All transportation and logistics costs are included in the pricing,” said the owner.

Meanwhile, the price of steel bar at the source, Perfect TMT, is Nu 71.2 per kilo and Nu 854,400 for a truckload. 

However, the Chief Executive Officer of Perfect TMT, Pema Tenzin said, “While the companies have merged operations, it should be noted that a monopoly has not been formed.”

“By definition a monopoly is the exclusive possession or control of the supply of or trade in a commodity or service,” he said.

“With a free trade arrangement with India, it is impossible to have a monopolistic market in a product such as steel where there are numerous traders supplying various Indian manufactured steel products,” he said.

Four steel companies in Pasakha- Lhaki Steels and Rolling Pvt. Limited, Bhutan Rolling Mills Limited, Druk Iron and Steel Pvt. Limited, and Bhutan Steel Industries Ltd. merged into one with the Ministry of Economic Affairs approving the same on December 31, 2021.

According to Pema Tenzin, the reason for merging the companies was because none of the companies were able to operate beyond 50% capacity utility as there are many numbers of manufacturers in the country; resulting in over installed production capacity.

“In a capital-intensive industry such as steel, economies of scale and optimum production capacity utilization is the key to survival in the industry. With operation at less than 50% capacity, all the companies were becoming unviable,” he said, adding that after a preliminary study, the only way to continue operation was to reduce capacities, consolidate all resources: infrastructure, technical expertise and improve efficiencies in the production process.

Meanwhile, after the merging of the companies, Pema Tenzin said that Perfect TMT steels were approved for use in hydropower projects.

“With sharing of resources, both financial and technical, the steel companies have been able to focus on procuring quality raw materials, investing in quality control measures and laboratories,” he said.

According to him, the idea that merging enterprises creates monopolies is incorrect.

“While Perfect, the brand under which the steel is sold, only manufactures mild steel re-bars, it should be noted that various other structural mild steels such as Angels, Channels, and Beams/Joists are still sourced from India along with mild steel rebars. In addition, there is another steel plant in eastern Bhutan scheduled to start production of mild steel bars,” he said.

He added that extensive research was conducted and invested in and all the positive way forward findings to improve quality and bring about cost-effective economies of scale in all operations of the plants.

“One of the companies, Druk Iron and Steel Pvt. Ltd. was shut down and some of the companies’ state-of-the-art equipment were relocated to Lhaki Steels and Rolling Pvt. Limited to further improve on the quality and production efficiency,” Pema Tenzin said.

Tshering Pelden from Thimphu