Soaring steel price torments construction firms

Steel prices, which have surged 20-35% against last year, have rattled construction contractors and real estate developers.

The construction project of Hanoi-based Agricultural Construction Company (Vinacco) in the Mekong Delta province of Lam Dong is suffering losses due to soaring steel prices.

To make it worse, suppliers are reluctant to sign long-term supply contracts, selling only at their stores based on daily market prices. That means sourcing steel is Vinacco’s second headache.

“They even hoard steel on anticipation the price will keep rising day after day,” Do Van Ngoc, chief supervisor of the project.

Construction contractors suffer

Nguyen Binh, Director of the Ho Chi Minh City-based Dai Nghia Construction Company, said steel prices on the market have climbed 20-35% against 2021.

The price of D6, D8 steel coils from brands such as Hoa Phat, Pomina, Viet Nhat, Viet Duc and Viet Italy has soared from around VND17 million ($743) per ton at the end of 2021 to VND20.3 million ($875), excluding VAT.

Prices of other building materials like cement, bricks and sand have also risen 10-30% due to higher freight rates.

Steel accounts for about 20-30% of the cost of building apartments and houses, according to Binh. Therefore, the higher steel price will push the construction cost up by around 15%.

“As a construction contractor, our company will have to reconsider the contracts signed. However, not all investors would agree to revise signed contracts.”

Binh said his company has accepted that all their under-construction projects would make no profit. They have temporarily halted two projects and rejected new ones to limit the degree of damage.

Apartment price likely higher

As calculated by contractors, for a construction contract worth VND100 billion ($4.37 million), building materials account for 60-70%. With such soared steel prices, building costs could rise by more than 10%.

This means the price of an apartment could climb from VND30 milion per square meter to VND35 million ($1,530). It would be consumers who suffer if the developer passes on the additional cost to them.

Ngo Quang Phuc, General Director of Phu Dong Real Estate Group JSC, said the price of apartments is already pretty high, while supply is quite limited as legal entanglements prevent new projects.

“Real estate businesses have factored the increased material costs in their price. It is expected that the housing market would see a new price level by the end of the year.”

Tran Duc Vinh, CEO of Tran Anh Real Estate Group, said his company is adjusting its prices based on additional costs, but that means they would have more difficulties in selling their products.

Tran Anh is selling properties at three projects in Long An, Ba Ria-Vung Tau and An Giang provinces.

Vinh said he expects the steel price would continue rising until the end of the year. “Moreover, some major national infrastructure projects such as the North-South Expressway and Long Thanh International Airport, and the real estate market’s recovery will increase steel demand by 5-10% this year.”

Suppliers also in “hot water”

Vo Thi Hoai, Director of Binh Tan Building Materials JSC, said her company and other suppliers of building materials are also facing many challenges to assure supplies for partners.

“To keep clients, we are compelled to have a large number of support measures and aggressively seek for new sources to offset the shortage, leading to rising costs. Also, a spike in gas and oil prices raises the expense of transporting goods, which we must absorb, reducing our profitability.”

Le Quang Canh, Director of Trung Viet Machining Machinery Company in Ho Chi Minh City, said many producers using steel as inputs are losing money as they signed supply contracts when the steel price had not risen.

“We are suffering a huge loss in manufacturing mechanical products. We even don’t dare to sign new contracts for fear of incurring losses due to high iron and steel costs,” he added.

Vinh, CEO of Tran Anh Real Estate Group, proposed that state authorities take measures to stabilise the steel price so as the market could develop sustainably and the price of housing would not keep chasing after that of construction materials as is the case.