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The “price storm” of raw materials “wipe out” profits, pushing many construction businesses into losses

This is the opinion of experts in a report on the construction and building materials industry that has just been announced by Vietnam Report Joint Stock Company (Vietnam Report) on April 5.

“Price storm” of raw materials becomes “nightmare”

According to Vietnam Report, the construction industry has experienced a difficult year in 2021 due to the negative effects of the Covid-19 pandemic. In the first 6 months of the year, thanks to the experience gained from 2020 and the good adaptation of businesses, the industry’s growth reached 5.59%, higher than the growth rate in the same period in 2020 of 4.54%.

However, under the prolonged impact and strong outbreak of the fourth epidemic, many localities including Hanoi and Ho Chi Minh City were forced to implement social distancing. Most of the projects located in the isolated provinces had to stop construction. Projects located outside the isolation area were also delayed due to disruptions in the supply of materials and human resources. The most visible economic losses are: the cost of maintaining the apparatus, the cost of epidemic prevention and control, the cost of mobilizing resources after the distances… 37.9% of the enterprises participating in the survey According to Vietnam Report’s survey, over 20% of their projects/contracts are delayed or affected by costs due to the Covid-19 epidemic.

In addition to the complicated developments of the epidemic, fluctuations in the price of raw materials have become a “nightmare” for construction contractors. The price index of raw materials, fuel and construction materials increased by 6.4% over the same period last year due to high demand for construction materials while the supply chain has not been interrupted since 2020. Two types of materials The most important construction steel and cement prices increased by 40% and 8.4%, respectively. Since the cost of construction materials accounts for about 65 – 70% of the estimated cost of construction, the increase in the price of construction materials directly affects the cost of construction investment, the efficiency of many projects, and the erosion of the margins. enterprise profits.

Positive signal

Despite losing its growth momentum before the pandemic, Vietnam’s construction market is still a bright spot in the Asia-Pacific region, valued at around $60 billion in 2021 and forecast to grow at a faster rate. more than 8.71% in the period 2022-2027.

Positive signals came from the first months of the year when the backlog (unrealized contract value) of leading civil construction enterprises continued to peak.

In addition, FDI inflows continue to pour strongly into Vietnam, which is a bright spot for the industrial construction segment. Specifically, as of March 20, 2022, the total newly and additionally registered FDI capital and share purchase reached nearly 9 billion USD; total disbursed capital is estimated at 4.42 billion USD – this is the highest level compared to the first quarter of the years 2018-2022.

In addition, a series of government support measures recently implemented have been creating new impulses for businesses in the industry to recover and accelerate.

According to the Resolution on fiscal and monetary policies to support the Socio-Economic Development and Recovery Program, a maximum of 176,000 billion VND will be spent on development investment, most of which is investment in transport infrastructure.

Also in 2022, the Ministry of Transport is expected to be assigned a medium-term public investment plan of more than VND 50,000 billion by the Government – the largest level ever. The fact that a series of expressway projects will be accelerated in the period of 2022-2025 will open up opportunities for profit breakthrough for the group of businesses building transport infrastructure.

The need to mobilize large construction materials in projects will also positively affect the group of enterprises of construction steel, construction stone, asphalt and cement in the coming time.

Along with that, the legal environment also has some positive changes. Recently, the National Assembly approved the project “1 law to fix 8 laws” to remove many legal bottlenecks in the field of construction and real estate. In addition, the Government’s Resolution 02/2022 on promoting the improvement of the business environment and enhancing national competitiveness is expected to create enough pressure to create drastic changes in investment policy. maintaining economic management, forming a support to help businesses in the industry be ready to accelerate and conquer new milestones in 2022 and the following years.

Inflationary pressure weighs on growth

However, experts say that there are still challenges for businesses in this industry such as inflation pressure, recent political tensions between Russia and Ukraine, which will indirectly affect the construction industry – building materials in Vietnam through through many channels such as oil price movements and world steel prices…

The Vietnam Report survey also shows that businesses understand the importance of building resilience when implementing projects and allocating capital. 100% of businesses have been and are committed to taking drastic action to improve their resilience to future disruption events, of which 33.3% have completed with solutions. Practically, 43.3% of enterprises are in the process of implementing and 23.4% of enterprises are planning.

“Last year, although businesses took the initiative to respond, growth was still low. This shows that a crisis management plan may not be enough.

Businesses are suffering the negative effects of neglecting to invest in business recovery strategies. While this is a strategy that not only helps businesses overcome difficulties from risks and disruptions, but also can recover faster,” experts said.

https://cafef.vn/bao-gia-nguyen-vat-lieu-quet-sach-loi-nhuan-day-nhieu-doanh-nghiep-xay-dung-roi-vao-thua-lo-2022040610064888.chn


According to Phong Linh

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