Steel price hike makes construction works suffer

The steel price saw the dizzy price increase of VND2mil/tonne in the last two months, putting contractors into a dilemma.

According to the Vietnam Steel Association (VSA), its members now sell steel at VND9-9.5mil/tonne (not including VAT). If counting on the 10% VAT, transportation fee, commission for sales agents, customers can purchase steel at VND10-10.5mil/tonne on average, while the price may reach VND11mil/tonne in remote areas.

Steel prices have been rising since mid April 2007. In the north, producers raised the price by VND200-300,000/tonne since the end of May. In the south, the price has been raised by VND150,000-200,000/tonne since the beginning of June.

The south saw the lower price increases compared to the north because the Southern Steel Corporation tried to keep the low selling prices in order to gain the yearly output plan. In the first months of the year, the sales were slow and the corporation tried to offer low prices in a bid to boost sales.

However, once the sales were improved (the corporation could sell 70,000 tonnes in May alone), it began raising the selling price by VND150,000/tonne of rolled steel and VND200,000/tonne of bar steel. The move has been followed by other producers.

The Southern Steel Corporation has announced it would raise the price by another VND200,000/tonne, and the new prices will be applied as of June 20. As such, the bar steel will be priced at VND9.65mil/tonne, while rolled steel is VND9.2mil/tonne.
Analysts said that the overly high ingot steel price has led to the material shortage for steel mills, and the output of finished steel is not enough to satisfy the market.

Le Ngoc Son, Head of the International Cooperation Division under VIS, said that the company has sold out the imported China-made 10,000 tonnes, bearing VIS trademark.

Mr Son said that VIS has not thought of importing more from China this way (ordering Chinese producers to make steel under the VIS trademark and then importing it to sell domestically). The Government of China has decided to remove the scheme on VAT refunds, while imposing 10% on steel exports, which makes China-made steel as expensive as the locally-made product.

Mr Son said that the steel price may increase to VND11mil/tonne due to the increased import price of ingot steel, while local steel mills still rely on ingot steel imports.

Contractors of construction works are weeping over the price hike. Luong Sy Nhung, Director General of the Truong Son Construction Corporation under the Ministry of National Defence, said that the sharp price increases in the last two months have put difficulties on construction projects.
“What worries us most is the material price hike,” Mr Nhung said.

As for some construction works, expenses are fixed and contractors do not have the right to adjust the expenses when the material prices fluctuate. In this case, contractors have to incur losses due to the price hike.

In other works, contractors can adjust the expenses when the material prices fluctuate.

However, contractors still have to pay expenses on account and then ask for the payment from projects’ investors. Mr Nhung said that the complicated procedures for the payment always makes contractors exhausted. In most cases, contractors incur losses from price fluctuations as steel accounts for 25% of total expenses in construction works.

Nghiem Sy Minh, Director General of the Hanoi Construction Corporation, said that the construction pace will slow down as contractors will have to negotiate with investors on the adjustment of expenses.

Source: VNE