+
EPC contractors to seek fixed-price contracts from steel companies
Steel

EPC contractors to seek fixed-price contracts from steel companies

To protect themselves from the volatility of steel prices, a few highway Engineering, Procurement, and Construction (EPC) companies have begun negotiating fixed-price annual contracts with domestic steel companies.

Concerned about rising raw material costs, some have asked the Ministry of Road Transport and Highway (MoRTH) to consider including cost escalation clauses in projects awarded before FY21, according to India Ratings.

In FY21, average domestic steel prices increased by 26% y-o-y, and by 23.5 % in Q1 FY21. Prices peaked at Rs 56,000 per million tonne (mt) in May 2021 before falling to Rs 52,000 per mt in June 2021.

The EPC sector is concerned about the rise in steel prices, which has already seen a 10-12% drop in earnings before interest, taxes, depreciation, and amortisation (Ebitda) in the previous fiscal year, owing to a drop in revenue combined with an increase in manpower management costs and commodity prices.

According to the rating agency, EPC players with a large number of uncompleted orders before FY21 and low ratings are more vulnerable to steel price fluctuations and may see significant margin erosion, weakening their credit profiles in the short to medium term.

India Ratings said that EPC players typically try to factor in increases in raw material prices in their bids by estimating fluctuations based on historical trends, making them vulnerable to price spikes. The recent rise in steel prices is causing greater concern for players who have a significant amount of unexecuted order book that was awarded prior to FY21.

Image Source


Also read: Stressed steel plants bought under IBC witness faster returns: CRISIL

To protect themselves from the volatility of steel prices, a few highway Engineering, Procurement, and Construction (EPC) companies have begun negotiating fixed-price annual contracts with domestic steel companies. Concerned about rising raw material costs, some have asked the Ministry of Road Transport and Highway (MoRTH) to consider including cost escalation clauses in projects awarded before FY21, according to India Ratings. In FY21, average domestic steel prices increased by 26% y-o-y, and by 23.5 % in Q1 FY21. Prices peaked at Rs 56,000 per million tonne (mt) in May 2021 before falling to Rs 52,000 per mt in June 2021. The EPC sector is concerned about the rise in steel prices, which has already seen a 10-12% drop in earnings before interest, taxes, depreciation, and amortisation (Ebitda) in the previous fiscal year, owing to a drop in revenue combined with an increase in manpower management costs and commodity prices. According to the rating agency, EPC players with a large number of uncompleted orders before FY21 and low ratings are more vulnerable to steel price fluctuations and may see significant margin erosion, weakening their credit profiles in the short to medium term. India Ratings said that EPC players typically try to factor in increases in raw material prices in their bids by estimating fluctuations based on historical trends, making them vulnerable to price spikes. The recent rise in steel prices is causing greater concern for players who have a significant amount of unexecuted order book that was awarded prior to FY21. Image Source Also read: Stressed steel plants bought under IBC witness faster returns: CRISIL

Next Story
Infrastructure Energy

Maharashtra Clears 100 MW Hybrid Power Project

The Maharashtra government has approved the diversion of 4.90 hectares of reserved forest land for the development of a 100 MW hybrid renewable energy project at the Middle Vaitarna Dam in Palghar district.Combining 20 MW of hydroelectric power with 80 MW of floating solar capacity, the project is expected to generate around 208 million units of electricity annually. With this clearance, construction can now commence.Completed in 2014, the Middle Vaitarna Dam in Kochale village stands 102.4 metres high and stretches 565 metres in length, supplying 455 million litres of water daily—about 11 p..

Next Story
Infrastructure Energy

Mumbai Clears First Hybrid Hydro-Solar Power Project

The Maharashtra government has approved Mumbai’s first municipal-level hybrid renewable energy initiative, granting final clearance for the diversion of 4.9 hectares of forest land in Mokhada, Palghar, to develop a hydroelectric and solar power project at the Middle Vaitarna reservoir.The Brihanmumbai Municipal Corporation (BMC) received the crucial approval on 21 July — the last of several pending permissions — allowing construction to commence on a project that has been planned for over five years. Once operational, it is expected to generate around 208 million units of electricity ann..

Next Story
Products

RR Kabel Unveils Future-Ready Wires for Safer, Sustainable Homes

RR Kabel, a leading wires and cables manufacturer, has launched three next-generation wire solutions designed to meet the demands of modern Indian homes and infrastructure amid rising temperatures and electrical loads. The new range includes Flamex HR+FR, Superex Green HR+FR, and Firex LS0H-EBXL, offering enhanced safety, performance, and sustainability. “As homes grow smarter and temperatures rise due to global warming, wires must evolve too. Our new range is built to anticipate tomorrow’s challenges—higher temperatures, heavier loads, and the need for greater safety and environmen..

Advertisement

Subscribe to Our Newsletter

Get daily newsletters around different themes from Construction world.

STAY CONNECTED

Advertisement

Advertisement

Advertisement

Talk to us?