18,000 Kenyans lose jobs as steel prices tumble

Industrialisation Cabinet Secretary Adan Mohamed (left) with Devki Steel Mill Chairman Narendra Raval during a familiarisation tour of the firm in Ruiru last year. The firm is one of those that have been hit hard by the slump in steel prices, sending home more than 2,000 employees. [PHOTO: KAMAU MAICHUHIE/STANDARD]

As global prices of steel tumble to their lowest levels in over a decade, several local steel manufacturers are struggling to keep up with the huge inflow of cheap steel imports from China.

And now, these manufacturers are crying out to the government to come to their urgent aid. China, by far the greatest producer of steel, has been experiencing some economic stagnation. Demand for steel by Chinese factories has thus waned forcing the world's second largest economy to pump more of this metal into the global market. The result has been a steel-glut and a considerable reduction in price.

A number of local steel manufacturers have in effect been forced to close shop or scale down their production. Others have laid-off their employees in droves. Kenya's largest steel mill Devki Steel Mill Limited has sent home more than 2,000 employees as the after-effects of the price slump begins to bite.

An a senior employee at Devki confirmed to Weekend Business that the company had indeed laid off 2,000 workers but declined to give further details saying the only person permitted to speak to press is the company's Chairman Narendra Raval who was away in India.

Last month, KRA's Commissioner General John Njiraini captured the grim state of the steel sector when he said the taxman was not meeting most of its targets as companies struggled. "I was in a meeting recently with some players in the steel industry who told me the industry had shed off 18,000 jobs," he told The Standard on Sunday.

Kotni Rao, the head of steel sector at Kenya Association of Manufactures (KAM) and the CEO of Bluenile Rolling Mills Limited confirmed that most of the steel coming into the country was from China.

However, he regretted that the government of China gave 'hefty subsidies' as high as 13 per cent to all its export materials thus denying local manufacturers competitive advantage.

"The FOB price for raw materials and finished products are more or less the same," Rao said of exports from China. The FOB (Free On Board) is a term of sale under which the price invoiced or quoted by a seller includes all charges up to placing the goods on board a ship at the port of departure specified by the buyer.

He added while finished products into the country are slapped with 25 per cent import duty, which amounts to about $75 (Sh7,698.80) per tonne, the effort amounts to nothing given that the conversion cost of a tonne of steel in Kenya is at a high of $200 (Sh20,530.13). Rao blamed the huge conversion cost to high costs of power, finance and labour.

Steel lost $280 (Sh28,742.18) per metric tonne or 57.14 per cent during the last 12 months from $490 (Sh50,298.82) per metric tonne in January of 2015.

 

"If the government does not impose either specific duty or dumping duty on cheap imports from China and other economically troubled countries, we shall continuously be losing employment," said Rao who added that most countries including South Africa, India and Europe have done the same.

"Kenya being pioneer in East Africa should react like a big brother and do what the rest of the world has done to protect their workforce and economy," said Rao.

Moreover, the low price of steel has seen local manufactures lose one of the key markets, the East African countries of Uganda, Rwanda and Burundi. Taking advantage of the low prices, these countries have by-passed the Kenyan manufacturers for the cheap imports from China.

Director at steel-manufacturing firm Steel Makers Limited Bobby Johnson said that almost all the countries where Kenya exported its steel have since started manufacturing their own steel. Encouraged by the low global prices of steel, these countries must have taken advantage and set up their own steel making industries.

The more than 20 steel makers in the country are all left to battle out for the small Kenyan market. In 2014, Kenya's main export destination was Uganda where it exported mainly flat-rolled products of iron and steel.

But a slump in the price of steel has been good news for the many players in the construction-related industries for whom steel is a critical raw material. End users of steel are the greatest gainers in the slump in the prices of steel. Steel is one of the world's most important materials used in construction, cars and all sorts of machines and appliances.

Johnson says the drop in global steel prices should start reflecting in the mainstream market as a result of the slump in the global price of steel. He says that the cost of infrastructure might not necessarily come down dramatically; but it should not go up either. "There should be no variation in the cost of infrastructure," he said noting that price drop in Kenya in 2015 has been 35 per cent. This has been effectively passed onto the consumers, he said.

Eric Musau, an analyst at Standard Investment Bank (SIB) says that the trickle down effect would depend on a number of factors including the number of companies using the raw material, import taxes, consumption of power in the processing of steel, and the currency exchange rate.

Nonetheless, Musau agrees that some benefits have actually trickled down to consumers. According to the Economic Survey 2015, imports of iron and steel dropped by 1.8 per cent from 1,217,900 tonnes in 2013 to 1, 1196,000 tonnes in 2014.

On the other hand, the volume of iron and steel exports significantly dropped by 11.5 per cent in the same period. Kenya's construction industry on the other hand seemed to have reaped the benefits of low steel prices in the international market. In the third quarter of 2015, the economy grew by 5.8 per cent buoyed by construction.

According to figures from the Kenya National Bureau of Statistics, the construction activities recorded the fastest growth of 14.1 per cent compared to 8.8 per cent in the same period in 2014. This has been the story in the entire period. It is not clear whether this growth is in anyway connected to the slump in the global steel prices. By far the biggest producer of crude steel is China, followed by European Union, Japan, United States, India, Russia and South Korea.