The price ain't right

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Heavy price burden slows construction sector

Workers at a construction site in Ho Chi Minh City.

Steep material price hikes, especially for steel and cement, have dealt a heavy blow to construction firms, especially small ones.

Retail steel prices have increased by over 30 percent to nearly VND17 million ($894.7) per ton since early last month. The prices of other construction materials like cement, bricks, sand and stones also rose 10- 20 percent over the period.

Some construction material traders said the price hikes were due to the increase in their import costs, and higher gasoline and electricity fees.

Nguyen Van Thai, vice director of the construction porcelain producer Viglacera Thanh Tri, said the recent price surges in electricity and gasoline prices have raised production costs by 7-10 percent, thus the increase in selling prices is unavoidable.

Nguyen Tien Cuong, director of construction material trader Cat Tuong, said electricity price hikes alone had raised his firm's input costs by some 1 percent. Meanwhile, surging material import prices and higher exchange rates between the dong and the US dollar have also pushed up input costs.

Pham Chi Cuong, chairman of the Vietnam Steel Association, said that the world steel billet prices had affected local steel prices. Iron-ore has seen a more than double yearon-year rise to $150 per ton, while steel billet soared 8.6 percent to $620 per ton early this month compared to last month.

However, Cuong said there is also the possibility that steel makers are creating a fake shortage of steel.

"They are holding back a large amount of steel in anticipation that world steel prices will continue to increase."

Steel consumption in March reached 600,000 tons, at least 100,000 tons more than expected. The price of the metal in Vietnam has shot up six times in just four weeks, according to Nguyen Tien Thoa, head of the Price Management Department at the Ministry of Finance.

Recent inspections into steel prices have found signs of manipulation on the part of metal producers. Though he admitted that the prices of steel billet, ores, petrol and power had increased, Thoa said steel makers shouldn't make use of those hikes to raise their prices "excessively."

Blow back

The soaring prices of construction materials have hurt construction firms and people who have under-construction houses. Bui Minh Long in Thanh Tri District of Hanoi said the cement and steel price hikes alone will raise the construction cost of his 240-square meter house by more than VND100 million ($5,263).

"I don't know what to do, if [material prices] continue to increase as now," he said.

Vu Tuan Duong, director of construction firm Licogi 13, said the cement and steel price hikes have pushed production cost up by 10-20 percent compared to late 2009. His firm is working on a VND400 billion ($21.05 million) office and apartment project in Thanh Xuan District of Hanoi.

Duong said his firm had planned to increase its apartment prices, but that this may slow the firm's sales.

Vo Kim, chairman and general director of apartment construction and trade firm Me Kong, said the construction costs for his company's projects are expected to increase by 10 percent, so it will have to recalculate selling prices. The hikes may mean big losses for the company, he said, adding that his firm may cut the number of projects that it has planned to invest in.

Trinh Xuan Thanh, chairman of construction firm Song Hong, said his company had not yet calculated the increase in construction costs, but the impact of higher construction material prices would be unavoidable.

"However, we are not worried about it much. Because of the speculation factor, the steel price may soar today, and drop sharply tomorrow," he said. His firm has reserved enough steel for a year worth of projects.

However, smaller firms do not have enough capital to reserve construction materials. "It is difficult to access bank loans. Even if we could do it, we dare not because of high interest rates," Duong from Licogi 13 said.

Nhu Hao Quang, vice director of the Construction Machinery Firm No. 5, said it was difficult for his firm to estimate its production costs amid frequent fluctuations in material prices. Quang's firm consumes some 50-60 tons of steel each month for its projects. Thus, it may also soon be facing losses, he said.

"The government should strengthen its control over construction material prices," he suggested.


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