Complex steel story explains rapid-fire price increases

The domestic steel price has been steadily climbing upward in accordance with the world price, reaching nearly the threshold of 17 million dong per ton on April 7.

The steel price has made a record increase by 4.2 million dong/ton within five weeks from 12.4 million dong before March 1, 2010 to 16.6 million dong.

The retail price of brand name construction steel has also risen by 500,000 dong per ton in three days. The purchase price of second class agents is 16.2 million dong per ton, leading to retail prices at 17 million dong.

Blame the middle men?

The Ministry of Industry and Trade said that there are too many levels in the distribution network, so products go through 3-4 intermediaries before reaching consumers. That’s why customers must buy steel at sky-high prices.

Retailers argue that steel products must travel through two doors before reaching consumers. First class agents take steel directly from manufacturers and second class agents purchase steel from first class agents to resell.

Pham Thi Hoan, owner of Toan Cau Steel Shop, explained that on April 6 the steel sold by manufacturers was 15.6 million dong per ton. First class paid 16 million dong per ton after transport fees and other expenses. As such, the retail price was some 16.5 million dong per ton, a reasonable level.

Maybe the world price?

Many years ago, steel producers always argued that the increasing domestic steel prices emerged with world price increases, especially as Vietnam had to import ingot steel for laminating steel domestically at that time.

Now the situation is different. Vietnam can produce its own ingot steel, importing just 40 percent of the total needed for production. Still manufacturers rely on their old responses, explaining domestic steel price hikes by pointing to the world price.

Pham Chi Cuong, Chair of the Vietnam Steel Association, noted that ingot steel on the world market jumped from below $500 to $640-670 per ton in one month.

“That explains why steel producers must raise sale prices. The Vietnam Steel Corporation last week imported ingot steel at $614 per ton and this week imports it at $640,” Cuong calculated.

Other culprits at fault?

Not only ingot steel, but also other kinds of input materials for making ingot steel, such as scrap steel and coke coal have risen in price. Scrap steel is $430-460 per ton, a sharp increase of $60 per ton over March. Fat coal has increased 70-80 percent over 2009, now traded at $350 per ton.

In 2009, ingot steel factories with capacities of 500,000-1 million dong/ton a year were put into operation and hailed as a big achievement. Many thought that Vietnam would not depend on imported ingot steel any longer.

According to Cuong, an executive of Nasteel Vina, steel laminating factories are crying because of the high ingot steel prices, the ingot steel factories are whining because of the escalating input material prices of scrap steel and coke coal.

Thus, domestic ingot steel is not much cheaper than imported ingot steel. The gap between domestic products and imports is only 50,000-100,000 dong/ton. On April 6, Vietnam’s ingot steel increased from 12.8 million dong to 13.2 million dong per ton ($650 per ton).

Cuong added that, with the present price, manufacturers must sell at 16.7-16.8 million dong per ton and retail prices will far exceed 17 million dong per ton.

Vietnamnet

Tags: Vietnam steel industry, Vietnam steel prices