Skyrocketing material prices place duress on contractors

May 12, 2021 | 08:00
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Rising construction material prices are driving contractors into a corner while having mixed effects on steel producers and construction groups.
1543 p15 skyrocketing material prices places duress on contractors
Skyrocketing material prices places duress on contractors, Illustrative image. Photo: VNA

The Vietnam Association of Construction Contractors (VACC) has sent a document to the Government Office calling for help to protect Vietnamese contractors from the risk of bankruptcy due to the sudden dramatic increase in steel prices in the first quarter and early days of last month.

According to the association, steel prices have increased by 30-40 per cent compared to the end of the fourth quarter of 2020. In addition, the price of sand, bricks, and cement surged, leading to construction costs flying way past estimates.

According to a VACC survey, iron and steel agents in the north now issue price quotations every second day due to continuous increases, while others have moved from monthly to weekly quotations.

The Vietnam Cement Association said that in the first quarter, the southern region consumed the largest amount of cement in the country. While February was muted due to Lunar New Year, consumption more than doubled on-year in March. At the same time in the north, cement consumption increased nearly 40 pert compared to February.

VACC chairman Nguyen Quoc Hiep said the rising price of construction materials is putting contractors’ backs against the wall.

“These difficulties could paralyse the entire construction industry, significantly hampering the country’s economic development as construction accounts for nearly 10 per cent of the country’s GDP. The increase in construction material prices will also push up the price of real estate,” he noted in the letter.

The sharp increase in construction material prices has eaten into the profitability of many large contractors in the first quarter. For instance, Michael Tran, deputy general director of Coteccons, also reported heavy impacts from the rising prices to the recent annual shareholders’ meeting. The corporation’s first-quarter profit was the lowest since the second quarter of 2013 and gross profit margin was only 4.7 per cent.

Meanwhile, the net revenue of Hoa Binh Construction Group dropped 34 per cent on-year to VND2.44 trillion ($106.17 million) during the period. Meanwhile, after-tax profit dropped 95 per cent to only VND5.47 billion ($238,000), the lowest since the third quarter of 2014.

The group put the poor performance down mainly to the coronavirus pandemic and the rising price of construction materials.

In addition to the two leading contractors, 40 construction enterprises in the southernmost province of Ca Mau earlier this month signed a petition for help from local People’s Committee, requesting price adjustments. The petition argued that many construction contracts were signed as part of a bidding package with fixed unit price. However, the investors’ estimates were made before prices started running amok.

While the hike in steel prices could benefit the country’s largest steel producer, Hoa Phat Group, it is also experiencing rising revenues as well as material expenses. In 2021, Hoa Phat is expected to consume about 13 million tonnes of ore and seven million tonnes of coal. By the time the second phase of Dung Quat Steel Production Complex begins operations, the group will need about 40 million tonnes of ore and imported coal.

By Nguyen Thu

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