Vietnam real estate investors frozen by steel supplier scam

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Vietnamese property developers and constructors worry they'll have to halting or delay projects as they fear raised steel prices could render them bankrupt.

Steel makers have blamed their hikes on more expensive global steel billet, but in reality they're actually using cheaper billet they imported sometime ago. So far, they've made out like bandits.

An expert in the field who asked not to be named said steel producers normally raised their prices according to higher dollar-to-dong ratios, and more expensive steel billet on the world market.

But the "shocking" increases this year will not benefit producers, the expert said. "They will suffer the consequences when contractors and investors delay or cancel their projects."

Le Tan Hoa, general director of Hanoi-based Lilama Construction Investment Company, said steel accounts for 20-25 percent of construction costs and a 25-percent increase in steel prices since early this year has raised construction costs by 5-7 percent.

The company is investing in four houses and now needs around 15,000 tons of steel. As the metal went up another VND2 million per ton this March, the houses will cost another VND30 billion, Hoa said.

Many house project investors have tried to offer low prices to sell their products more easily, but their profits have slumped accordingly.

Higher steel prices are now forcing them to reconsider the plan, said Ngo Van Hieu, general director of Eximland, a real estate joint stock company set up by Vietnam Export-Import Commercial Joint Stock Bank (Eximbank) and four other firms.

An investor in a high-end house project in District 7, HCMC, said the company had not decided whether or not it would continue the project after pouring hundreds of billions of dong to lay the foundation.

The investor who requested anonymity said that if he raised house prices, no one would buy.

Real estate developer Eximland late last year planned to launch four housing projects in HCMC. But Hieu said the company had delayed the projects in light of the soaring steel prices.

Contractors are even more worried. Most of them only agree to work on a project once the investors give them 50-60 percent of the construction cost in advance.

An unidentified director of a construction firm which recieved 20 percent of the construction cost in advance said "We now have to beg the investor to negotiate the price again to reduce the losses we would suffer [due to steel price hikes]."

The director said the project will have to wait for the prices to go down. He also said the company would consider abandoning the project if the investor refuses to pay more.

As for Lilama, the price problems have pushed the company to have workers at its projects work only during the day instead of day and night in order to cut costs until the price surge dies down.

A win for producers

The Vietnam Steel Association said there were two reasons steel should be cheaper. First, it said that there was no steel shortage and that suppliers were still making products from local billet, which is tens of dollars cheaper per ton than imports that sell at surging world prices.

Second, the association said that while local producers were selling at world steel billet prices, which increased to $530-540 a ton from early March and will surge to $610 a ton in late April, many were in fact still using the billet they imported previously at $500 a ton.

By raising their prices according to world prices, no matter how much it actually costs them, steel producers last year profited many times more than planned, the association said.

The Vietnam-Italy Steel Joint Stock Company in 2009 sold 25 percent more than planned but their profit after tax was 10.4 times more.

VIS said it had raised prices when world steel billet prices climbed from $300 to $500 a ton from late 2008 to the first quarter 2009, even though it was using cheaper billet to make its products.

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