Steel prices soar: more harm than good

Recently, the steel production and consumption of Thai Nguyen Iron and Steel Joint Stock Company have many advantages due to the impact of the market. Along with the increase of the iron and steel prices in the domestic and international markets, their prices in the province have increased dramatically in recent months, pulling prices of many materials to grow along. This situation significantly affected construction contractors, civil construction activities. Experts said that if steel prices continue to increase or remain at the current high level, it will dramatically impact the economy and control inflation.

At present, the price of steel on the domestic market (including value-added tax - VAT and transportation costs) is about VND 18-19 million per ton, increasing to more than 50% compared to the end of last year. Mr. Le Thanh Thuc, Deputy General Director of Thai Hung Trading Joint Stock Company, explained that: The main reason is the price of raw materials (iron ore, scrap steel, coal ...) in the world increased two times compared to the same period last year. Meanwhile, Vietnam has to import about 70% of raw materials for steel production. On the other hand, as the largest steel producer and supplier globally, China has recently shifted from boosting exports to importing steel, causing a shortage of global supply. Moreover, some domestic producers also increase the export of steel billets, making the supply in the domestic market even more limited.

The question is which stage or who will benefit, and who will suffer in the current situation? Mr. Le Thanh Thuc said that commercial enterprises and distributors do not help much. Revenue increased (mainly due to increased selling price), but profit did not increase accordingly. Therefore, they must solve customer's issues and actively sourcing to compensate. Meanwhile, most manufacturers also faced many difficulties because the price of raw materials increased by 2.6 times, but the selling price of steel only increased by about 50%. They still have to import raw materials to maintain production and supply according to signed contracts. Construction contractors are naturally affected the most, especially when they have signed the contracts without changing unit prices from the beginning of this year or earlier.

Currently, the two-storey classroom building of Lien Co Kindergarten (in Dinh Ca town, Vo Nhai district) which has been constructing is awaiting the supply of steel 

In that context, a few self-sufficient enterprises in a part of raw materials have significantly increased profits. TISCO is an example. In the first five months of this year, the Company's total revenue increased by 35%, profit before tax increased by five times, and payment to the state budget increased by 85% compared to the same period last year. Mr. Vuong Duy Huong, Deputy Head of Administrative Organization Department of Thai Nguyen Steel Rolling Factory (one of 3 steel rolling facilities under TISCO) said: During the period of problematic consumption, the factory's inventory has up to more than 40,000 tons of steel. Our production volume is currently 27,000 tons/month, and products are consumed immediately.

As analyzed above, distributors, especially contractors, who signed fixed-price contracts faced many difficulties, even suffered damage. For example, Mr. Vu Xuan Tuyen, Director of Viet Thai Construction and Design Consultancy Joint Stock Company (Thai Nguyen City) explained: We are constructing six projects and have signed a package contract from the end of 2020. However, the high increase of steel made them be behind schedule, of which two projects had to stop temporarily.

In the same situation, Mr. Ma Van Ngoc, representative of the contractor to build the two-storey classroom building of Lien Co Kindergarten (Vo Nhai district), said: We signed the contract from the end of January this year with the total value of VND 8.5 billion). The steel price was VND 13 million per ton, but now it has increased to VND 19.8 million per ton. According to the design, the project needs to use 80 tons of steel. Currently, there is a shortage of more than 30 tons. If material price continues to increase, we will lose the deal.

Not only contractors, but the increase of steel prices also affected civil construction activities and mechanical production facilities. Mr. Nguyen The Anh, a resident of group 32, Phan Dinh Phung ward, Thai Nguyen city, said: I started to build my house in March 2021, but so far, the rough part has not been finished. I have to pause because the prices of iron and steel increased. According to the original plan, the cost of building my house was about VND 1.5 billion, but now it has risen to nearly VND 2 billion.

The recent sharp increase in steel prices has negatively affected many aspects, such as the construction activities, the progress of works, the disbursement of public investment capital, and the house price rise. At the macro level, this situation will make it difficult to control inflation and stabilize the market. Therefore, relevant ministries and branches have proposed many solutions to curb the increase in steel prices. Within Thai Nguyen province and the above resolutions, the authorities need to update construction material prices more often, request permission to adjust prices for some necessary projects.