Bangladesh's construction sector is facing challenges due to frequent hikes in the price of mild steel (MS) rod and other major construction materials while slow development activities have put many workers out of job, according to industry people.

The price of MS rod crossed Tk 1 lakh per tonne on Tuesday as production costs have risen due to increasing fuel and energy prices amid the ongoing US dollar crisis.

However, the Trading Corporation of Bangladesh has been listing the price of 60-grade MS rod at Tk 92,500 per tonne since Monday, down from Tk 95,500 previously.

"The higher cost will not only impact construction firms, but also the country's overall economic growth by slowing money circulation," said SM Khorshed Alam, former president of the Bangladesh Association of Construction Industry (BACI).

He went on to say that government entities do not adjust the cost of development projects in line with prevailing raw material costs even though the latest Public Procurement Rules (PPR) require them to do so.

Referring to the PPR, he said it provides the option to adjust the cost of government projects that have an implementation period of more than 18 months.

On the other hand, the implementing agencies do adjust the cost of foreign funded projects.

With this backdrop, Alam demanded that government funded projects also be adjusted as necessary or else construction firms will fall into huge losses.

According to the former BACI chief, there are more than 500 construction firms across the country that either directly or indirectly employ some 50 lakh people.

"So, these people will fall into financial trouble if money circulation in the industry slows," he said.

Mir Nasir Hossain, managing director of Mir Holdings Ltd, said frequent hikes in raw material prices has a huge impact on different sectors of the economy and construction is no exception.

The construction industry has been suffering for the last couple of years from continuous price hikes of different materials, specifically MS rod, stone chips and bitumen.

"The situation is unbearable as most locally funded projects do not have the price adjustment clause in their contracts," he said.

As a result, many companies will lose their capital and likely become bank defaulters. Also, project implementation will slow down, for which the economy will be affected.

Hossain, also a former president of the Federation of Bangladesh Chambers of Commerce and Industry, then suggested the government should include price adjustment clauses for all ongoing and upcoming projects considering the current situation.

Shahriar Jahan Rahat, deputy managing director of KSRM, said they are now selling MS rod at Tk 97,000 per tonne from the mill gate.

But when sold elsewhere, carrying costs as well as loading and unloading charges push the retail price past Tk 1 lakh.

Rahat then said that despite the price hike, there has been no visible impact on sales as customers are still purchasing MS rod considering how prices will eventually increase again anyway.

Meanwhile, market leader BSRM has been selling MS rod at Tk 100,000 per tonne from the mill gate.

"The price was adjusted due to abnormally high production costs. Producing rods using metal from scrapped ships now cost a minimum of Tk 103,560," Tapan Sengupta, deputy managing director of the BSRM.

Regarding the breakdown of production costs, industry insiders say scrap steel is priced at Tk 72,000 per tonne while waste from billet production costs Tk 9,300 per tonne.

In addition, operational costs stand at about Tk 20,000 per tonne, including 15 per cent for fuel and energy, import duty Tk 1,500, and advance income tax and VAT Tk 700 per tonne.

With this backdrop, manufacturers have decided to increase prices as a part of commercial adjustments.

"Around 90 per cent of the scrap steel used is imported. So, production costs have grown in line with the higher US dollar price and recent hikes in fuel and energy prices," Sengupta said.

Besides, the price of scrap steel recently increased to $70 from $60 per tonne in the international market.

The US dollar has gained around 22 per cent in value against the local currency over the past seven months.

As such, steel makers are having to settle letters of credit (LCs) at Tk 112 per US dollar to import raw materials.

Under these circumstances, they are facing difficulties in opening LCs, which his hampering business by preventing factories from running at full capacity, he added.