Lower steel prices and public investment disbursement are expected to provide growth momentum for the construction industry over the second half of 2022.
After hovering around 18,000 – 19,000 VND a kilo (0.77 – 0.81 USD per kilo), the price of construction steel has cooled down to the same levels as last year.
On July 9, steel producers, including Hoa Phat Group, Vietnam – Italy Steel and Vietnam Germany Steel Pipe, reduced steel prices for the eighth time in a row in two months.
Accordingly, the price of coils and rebars declined to 16,000 – 16,500 VND per kilo, about 8-9% lower than that in early May and down 13-15% compared to the beginning of March.
Vietnam Steel Association (VSA) said that the recent downtrend was thanks to the continuous decrease in raw material prices since the end of March, causing the market to slow down. Distributors seek to reduce inventories, so the factories’ outputs are much lower than usual.
SSI Securities Corporation said that after advancing 15% in the first quarter due to pent-up demand, domestic steel consumption volume, including construction steel, galvanised sheet and steel pipe, dropped by about 32% on-year in April and May.
Weaker demand due to persistent high steel prices and rising costs of other construction materials stalled operations, while concerns over record steel prices caused distributors to pause stockpiling and tightened management policies on capital inflows into the real estate sector.
VNDirect Securities Corporation expects the selling price of construction steel will gradually go down to the average level in the long term.
However, the prospect of a strong recovery in steel demand after the pandemic and high input material prices will make the sliding process longer than expected. Specifically, the average selling price of construction steel in 2022 and 2023 will be 16,100 VND and 14,500 VND a kg, respectively, down 5-15% compared to the current price.
Construction businesses benefit significantly from the steel price movements. In the structure of construction costs, raw materials account for 65-70% of the estimated construction expenses, of which steel and cement are the two most important materials.
However, the prices of cement still inch higher to 1.65 – 1.7 million VND a tonne due to higher costs of input materials such as coal, electricity, gasoline, gypsum, additives, packaging, freight rates and labour.
According to the Vietnam National Cement Association (VNCA), the prices of cement will continue to rise in the second half of the year as input costs are still at high levels and domestic consumption can increase again thanks to the acceleration in disbursing public investment and implementation of key transport infrastructure projects.
Positive outlook for construction stocks
The Ministry of Planning and Investment said that public investment disbursement in the first half of the year was estimated at 151 billion VND, fulfilling nearly 28% of the plan assigned by the Prime Minister.
Besides factors related to policies, institutions, or labour shortages, the high price of construction materials is also the cause of the slow disbursement of public investment.
Prime Minister Pham Minh Chinh signed Decision No. 548/QD-TTg on establishing six inspection teams to solve problems related to the disbursement of public investment capital.
Specifically, the Government will implement many drastic solutions to boost public investment in the second half of the year and next year, such as increasing the frequency of updating material prices in localities and keeping project diaries to ensure payment for contractors.
For the whole year, VNDirect maintains its expectation that the public investment will increase by 20-30% over last year, as growth in the second half of 2022 will be higher than in the first half.
At the same time, as Vietnam is still gradually reopening its economy post-pandemic, public investment disbursement will grow rapidly throughout 2023 and become the main driver of demand for construction and construction materials.
In the long term, the scale of investment packages in key traffic projects in the country is very large, up to 32.1 billion USD in the 2022-2030 period.
Mirea Asset Vietnam Securities assesses that the profit margin of the construction industry is under pressure due to the high cost of input materials and the dip in the supply in the housing market. In addition, the impact of public investment has not met expectations.
However, in the long term, Mirea has a positive expectation on the growth of construction stocks as the demand for investment in infrastructure and residential real estate in Vietnam is still high. As the progress of public investment has improved and the bottlenecks of the real estate market will be removed, there is more room for construction companies to grow.
Source: Vietnam News Agency
