Rising Construction Material Costs Hamper Development Projects

Disruptions in the supply chain and a sharp rise in raw material prices linked to the US-Iran conflict have severely impacted development projects in Nepal, particularly water supply schemes.

The Department of Water Supply and Sewerage Management confirmed that the halt in pipe supply has affected the construction of water supply projects.

"Pipe supplies have been halted in projects tendered by our district offices," Ratna Prasad Lamichhane, deputy director general of the department, said. "Suppliers are telling us they cannot work at the current raw material prices and have suggested we cancel contracts if necessary."

He added that suppliers have cited the unavailability of raw materials required for pipe production as the reason for their inability to deliver.

On March 22, the High-Density Polyethylene Pipe Manufacturers Association of Nepal issued a statement warning that plastic pipe industries might be forced to shut down due to a shortage of plastic-based raw materials caused by the conflict.

"Ongoing tensions in West Asia have disrupted shipments of raw materials imported from India and other third countries over the past few weeks," the association said in its statement. "As a result, some industries currently have zero raw material inventory and have already shut down, while others are on the brink of closure."

The association also noted that the price of available raw materials has increased by approximately 62 percent. It called for mutual agreements to adjust prices under contracts signed with various water supply offices, non-governmental organizations, construction entrepreneurs, consumer committees, and local bodies for pipe supply.

The Federation of Contractors’ Association of Nepal (FCAN) issued a press release on March 16 proposing a "Construction Holiday," citing the unavailability of construction materials and steep price hikes in those that are available.

The construction sector, already struggling with delayed government infrastructure spending due to the Gen Z movement in September, festivals, and elections, now faces additional pressure from the ongoing conflict in West Asia.

In a separate development, Nepal Oil Corporation raised the prices of petrol, diesel, and kerosene by Rs 15 per liter effective from Thursday.

FCAN President Rabi Singh said fluctuating prices are making it difficult to proceed with construction work. He claimed that prices of bitumen, rebar, and cement have risen, and that suppliers have resorted to syndication by fixing quotas.

"Suppliers are adopting a policy of charging higher prices by reducing sales," Singh said. "If we are to continue construction under these circumstances, price adjustments must be made. Otherwise, it is better to leave construction work."

According to entrepreneurs, the price of petroleum-based byproducts has risen sharply. Imported plastic-based materials have become 50 to 60 percent more expensive. The weakening of the Nepali currency against the US dollar has also pushed up prices, as raw materials like iron are imported from India with payments in dollar.

"A problem in the Strait of Hormuz has made shipments difficult," said a construction material supplier. "Container shipping costs have also gone up. Right now, containers are hard to come by, and even goods that were booked earlier have not been shipped to Nepal due to rising costs."

Construction entrepreneurs have also reported a shortage of bitumen, which is used in road blacktopping and waterproofing. However, Pravin Paudel, accounts and finance manager at Nepal Bitumen & Barrel Industry Ltd. under the Panchakanya Group, said bitumen supplies from India are continuing and demand is being met.

He noted, however, that demand has fallen due to higher prices. "Bitumen is available, and we can supply it," Paudel said. "But prices have risen significantly. Since the conflict began, bitumen prices have increased by 25 percent, and the Indian Oil Corporation (IOC) has projected a further 20 percent increase."

IOC revises bitumen prices every 15 days. According to IOC's projections, bitumen prices are expected to rise further. Paudel said the corporation currently sells bitumen at INR 50,000 per metric ton.

"IOC has projected an increase of INR 10,000 per metric ton, which would bring the price to INR 60,000," he said. "Bitumen prices are expected to increase further."

According to Paudel, bitumen that was previously available at Rs 100 per kg in Nepal has now reached Rs 120 per kg, leading construction entrepreneurs to hold off on purchases. "With the price increase, orders have started being canceled over the past few days," he said. "Demand is not what it used to be. Prices have gone up by Rs 15 to Rs 20 per kg."