Construction firms face bankruptcy as steel prices soar

Local construction firms face the risk of bankruptcy as the price of steel has soared 40% recently.

The price of construction steel is now nearly VND19,000 per kg and with the material accounting for about 28% of the building cost for an apartment and 35% of the cost of a semi-detached house, insiders said construction costs had soared.

Nguyen The Diep, Chairman of the Board of Directors of Hung Thinh Phat Investment Group, said, "With urban areas, condominiums, iron and steel account for a relatively large proportion of the product prices so house prices will definitely be higher in the near future."

A contractor who is building three construction projects of apartments and townhouses at a fixed price of VND900 billion said he lost at least 8% of the total contract value and lost all potential for profit.

Tran Hong Phuc, General Director of Phuc Hung Holdings Construction Joint Stock Company, said: "When the price spikes, the excess cost of the provision will also affect the price range we offer to the market and buyers will be the last to bear the high cost."

Hoang Ngoc Tu, Deputy General Director of Delta Group, which develops a lot of social housing, said the increased materials costs will push even social housing prices up.

To deal with the situation, the Vietnam Association of Construction Contractors (VACC) recently sent a petition to the Government, asking for solutions to deal with the sudden spike in construction steel prices.

VACC’s petition said the high prices would make construction contractors nationwide face the risk of going bankrupt as most of them were using fixed unit price contracts without adjustments except in case of force majeure, so they could not raise the prices of the houses.

VACC proposed the Government direct ministries and branches to examine the causes of the hike and ask the departments of construction to update the market unit prices.

Earlier, both the Vietnam Steel Association and the Department of Industry under the Ministry of Industry and Trade said construction steel production capacity was about 14 million tonnes per year, meeting domestic demand of about 11 million tonnes. However, construction steel shortages and strong price increases were still occurring.

On the other hand, the surge in prices of steel since the beginning of 2021 helped many steel producers record good performance in Q1.

Hoa Sen Group (HSG) posted an increase of nearly 382% year-on-year in net revenue to VND9.1 trillion, leading to a rise of 215.8% in profit after tax to VND572 billion. Ho Chi Minh City Metal Corporation (HMC) also witnessed strong growth in business results in this period with its revenue rising 40.4% from the same period of 2020 to more than VND1.1 trillion.

Thu Duc Steel JSC (TDS)'s revenue rose 22.7% year-on-year to VND601.6 billion. Its profit after tax also posted a gain of 45.5% to more than VND12.8 billion.