Investors and construction businesses seek ways to cope with rising steel prices

Steel prices skyrocket

Recently, construction steel prices at dealers in Nghe An have continuously increased, causing construction costs to increase significantly. According to a steel dealer's price quote,Lenin Avenue(Vinh City), steel prices currently range from 18 million VND to approximately 20 million VND/ton depending on the type. Because steel prices are increasing, price adjustments and quotations to customers are no longer made monthly or quarterly as before, but are updated daily.

Specifically, the price of CB240 steel coil of Thai Nguyen Iron and Steel Corporation is quoted at 21,200 million VND/ton; CB300 D10 ribbed steel bar is 133,500 VND/bar. Meanwhile, CB240 steel coil of Hoa Phat Group is priced at 20,950 million VND/ton and CB300 D10 ribbed steel bar is priced at 131,500 VND/bar... These prices do not include VAT and transportation costs to the construction site and depending on the time of fast or slow payment, there are different price differences.

Steel price list announced by a dealer to customers. Photo: TD

Explaining the recent increase in steel prices, dealers said that steel prices are listed according to factory selling prices. In fact, steel factories depend on steel billet supply from abroad, in the context of the Covid-19 pandemic, combined with the Russia-Ukraine conflict, which has made it difficult to import steel billets, pushing up the price of input materials.

The biggest impact when steel prices increase is none other than investors and households when building houses. Mr. Nguyen Dinh Tuan, residing in Trung Do ward, just started building a house at the beginning of this year, said: last year when steel prices increased rapidly, his family considered postponing the construction of the house by 1 year in the hope that steel prices would decrease, but waiting for steel prices to continue to increase, forcing him to decide to start building the house.

Steel prices have been continuously increasing in recent times. Photo: TD

According to Mr. Tuan, because he had hired a designer and calculated the cost as close to the price as possible, he could not cut any further. If the steel price remained as high as it is now, the cost of building his house would increase by more than 15% compared to the original estimate.

Struggling to find a way to cope

Mr. Vo Quang Toi - Director of a unit specializing in construction said: The increase in steel prices makes construction enterprises worried. Previously, steel prices in particular and the price of steel in generalconstruction materialsSteel prices, which usually fluctuate cyclically, depending on when construction activities are busiest, now increase daily, even when construction activities are limited due to the epidemic, steel prices also increase.

According to Mr. Toi, for each construction project, steel costs usually account for 10-30% of the total project value, and about 40-50% for construction projects of bridges, factories and large buildings. Therefore, the escalation of steel prices will have a strong impact on contractors. Because in reality, contractors are currently competing fiercely with each other by bidding prices, if they bid high, it will be difficult to win the bid, if they bid low and have to bear additional costs of price inflation due to increased materials, they will suffer losses. With each increase in steel prices, if contractors do not construct, they will be penalized for progress, will not be paid for the completed volume, and construction will become even more difficult.

According to calculations, the high price of steel causes each housing construction project to increase its capital by 15-20%. Photo: TD

According to Mr. Toi, construction contracts basically state that the investor will have to bear additional costs if the value exceeds 5%. However, it is not easy for the contractor to be paid by the investor for the additional costs. Previously, additional costs were almost just recorded for show, but now they have become a reality. Sometimes, after signing a contract today, the next day the steel price has jumped up, forcing contractors to renegotiate with the investor. If the negotiation is not successful, they have to grit their teeth and deal with this additional cost. Not to mention, there are projects that last from 3 to 5 years, the increased cost will be very large.

According to contractors, if previously, the cost per m²Construction cost about 5 million VND, but now it has increased to 6 million VND/m². Meanwhile, for the construction industry, especially small-scale contractors, who only rely on profits to pay workers, being affected by rising steel prices is inevitable.

According to many agents, the high price of imported steel billets has pushed up steel prices. Photo: TD

In addition, the high price of steel also greatly affects the investment costs of some projects invested by the state. Especially the construction of bridges, headquarters, schools, high-rise buildings, etc. For these projects, the construction time is often long, the planning and estimating takes years, while the price of steel and materials increases every day, making contractors extremely frustrated.

Mr. Ngo Quang Trung - Director of a construction consulting company in Vinh City said: many projects invested by the state cannot be completed because the price of materials has escalated too quickly. Compared to the time of signing the contract 2-3 years ago, the cost has now increased by about 40-50%, if the investor does not adjust this promptly, no contractor will be able to bear it.

Mr. Trung also pointed out the problem that currently, material prices change every day, while for projects invested by the state, price adjustment takes a lot of time, and even price construction is carried out quarterly, which will not keep up with the actual price fluctuations, which will cause great difficulties for investors and contractors, making it easy for projects to fall behind schedule.

High steel prices have caused many construction projects to overspend, especially those using public investment capital. Photo: TD

To cope with the increase in steel prices in particular and construction material prices in general, the current solution proposed by contractors is to increase human resources, speed up progress to complete the registered or signed volume in advance, and avoid prolonging the process which will result in great losses.

According to the opinion of Nghe An Department of Finance, the impact of fluctuations in construction material prices on projects using public investment capital is very clear. Depending on the level of fluctuations, investors and project management boards will have recommendations and proposals for adjustments. According to the Government's regulations on construction investment cost management, periodically each quarter, the Department of Finance and the Department of Construction will base on fluctuations in construction material prices in the province to announce construction material prices. This will be the basis for investors to refer to and decide on the preparation and adjustment of construction estimates of the project.