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
Resources

Madhya Pradesh Champions Inclusive Tourism at Heritage Sites

On the occasion of World Heritage Day, Madhya Pradesh is taking a significant step toward inclusive tourism by making its historical sites accessible to all — especially persons with disabilities. The state is rolling out its ‘Accessibility Infrastructure and Development’ project at Maheshwar, Mandu, Dhar, and Orchha, aiming to create a more welcoming experience at these iconic cultural destinations.The initiative, under the leadership of Chief Minister Dr Mohan Yadav and Tourism Minister Shri Dharmendra Bhav Singh Lodhi, includes infrastructure upgrades such as ramps, Braille signage, w..

Next Story
Resources

Runwal Realty Onboards Sonam Kapoor as Brand Ambassador

Real estate major Runwal has unveiled a refreshed identity as Runwal Realty, signalling a renewed commitment to crafting spaces that stand the test of time. With this refresh, the brand unveils its new philosophy: “Building for Generations to Come” and welcomes Bollywood star and global fashion icon Sonam Kapoor as its brand ambassador. This evolved identity reflects Runwal Realty’s commitment to creating not just homes, but heirlooms—crafted through visionary design, meticulous planning, global design expertise and an unwavering focus on quality. With the customer at its core, each de..

Next Story
Infrastructure Urban

Emerging Trends in Infrastructure and Transport 2025: KPMG

KPMG’s latest report, The Great Reset: Emerging Trends in Infrastructure and Transport 2025 edition, sheds light on the profound changes transforming the global infrastructure landscape. As industries adapt to the challenges posed by climate change, economic pressures, and technological advancements, the report identifies key trends and provides actionable insights for leaders in infrastructure and transport sectors. “In today’s interconnected world, the lack of standardized supply chain practices is not just an operational challenge—it’s an environmental and economic one. We’..

Advertisement

Advertisement

Subscribe to Our Newsletter

Get daily newsletters around different themes from Construction world.

STAY CONNECTED

Advertisement

Advertisement

Advertisement

Advertisement

Talk to us?