Indian engineering, procurement, construction (EPC) companies have started negotiating with domestic steel producers for fixed price contracts and have approached the ministries in charge of government infrastructure projects seeking price escalation clauses in contracts, India Ratings (Ind-Ra) said in a report on Friday, July 23.
EPC companies in India already witnessed a 10-12 percent decline in earnings in the last fiscal year mainly due to a decline in revenues along with increases in manpower costs and commodity prices, and they are worried over rising steel prices, Ind-Ra said.
Ind-Ra stated that average domestic steel prices surged by 26 percent year on year in the fiscal year 2020-21 and by 23.5 percent in the first quarter of the fiscal year 2021-22.
“EPC companies usually try to build in increases in raw material prices in their bids by estimating fluctuations based on past trends which make them susceptible to any sharp price surges. The recent surge in steel prices is causing great concern for EPC companies, which have a substantial quantum of unexecuted order books awarded prior to fiscal 2020-21,” the rating agency said.