Construction companies weather the price hike

July 23, 2022 | 16:52
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The recent cooling in the prices of some fundamental raw materials has alleviated pressure on construction companies, which are eager to restore their businesses with a slew of new contracts.
Construction companies weather the price hike

While the US dollar has strengthened over the past two months, the prices of some commodities and basic materials in industrial production such as oil and steel have experienced some adjustments after a long period of rising.

The global steel price decreased by 27 per cent per ton between the start of May and last week. Meanwhile, Brent oil prices fell 12 per cent to $106 per barrel from June 8 to July 20. In Vietnam, oil prices were adjusted on July 11 and July 21 with a total decrease of 16 per cent, while steel prices have undergone nine price reductions since mid-May, with a total decline of over 10 per cent.

Elsewhere, diesel and steel prices are 43 per cent and 40 per cent higher respectively than in early 2022. Although oil and steel prices are still at a high level, the recent adjustments have helped ease pressure on affected businesses, especially in the construction sector.

The early 2022 input cost hikes were due to rising material and transportation costs, coupled with the scarcity of labour and challenges for contractors to mobilise capital. Although some new contracts are being inked, many construction firms have recorded poor business results and even losses.

In May, Coteccons Construction JSC won the bid for the Diamond Crown Haiphong project. In the first quarter, Coteccons won other bids with a total value of more than $427 million. Coteccons posted a new contract value of about $1 billion last year, 3.6 times higher than in 2020.

Likewise, Hoa Binh Construction Group JSC has won two bidding packages so far this year, worth nearly $100 million in total. The company's new contract value last year reached almost $769 million.

This year, Fecon has secured bidding packages worth almost $98 million. In 2021, it picked up over $50 million in new contracts in the fourth quarter alone.

Other enterprises, such as Hung Thinh Incons JSC and Ricons Construction Investment, have also recorded high backlog values.

For Q1, the results of construction businesses on the stock exchange varied. Hoa Binh and Hung Thinh Incons posted on-year increases of 18.3 per cent and 14.3 per cent respectively, while Coteccons recorded shrinking profits and Fecon incurred losses over the period.

The financial situation of construction business groups is anticipated to improve by the end of the year due to an increase in workload and the likelihood that steel prices will continue to fall. The Ministry of Construction estimates that the cost of construction materials makes up 65-70 per cent of the estimated value of construction work.

Input material costs for primary materials like steel, cement, sand, and stone are the major expenses in this area. In 2021, steel prices climbed by 30-40 per cent, driving construction costs to some of the highest levels ever witnessed.

By Duy Bac

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