Many steel firms may go bankrupt in 2012: VSA

Vietnam Steel Association (VSA) has said that many steel enterprises are now manufacturing in moderation and some others are operating with 50% of their capacity.
VSA also said that in 2012 there will be many steel enterprises that would go bankrupt. Companies that use much energy and raw materials and fuels but produce unqualified products will have to close.

Dinh Huy Tam, VSA’s vice chairman, said that steel consumption in the first nine months of this year posted a negative figure and it is forecasted to see a negative growth for the whole year. In 2012, steel consumption growth is expected to 4%; therefore, many steel manufacturers may face difficulties.

Currently, some enterprises are producing in moderation due to strong fall in consumption. Many firms are operating with only 50% of their capacity but the stockpiled products still remain high.

Hai Phong-based Van Loi Steel Joint Stock Co had to shut down production. Van Loi now owes six credit institutions with many big valuable bad debts. In addition, Van Loi also bears the debts for electricity purchase with over 11 billion dong and social insurance of nearly seven billion dong.

Hai Phong-based Dinh Vu Steel Joint Stock Co continued posting losses in recent years, even the loss was up to hundreds of billion of dong, although it transferred up to 70% of stake for an Australian investment group, its current production activities have not been improved yet.

Cuu Long Vinashin Steel Joint Stock Co has just started production for short time, its production activities fell into suspension. Currently, the company is in the process of selling for others.

The difficulties, which steel firms are facing, are too high capital costs, increasing input fuel prices together with high prices of coal, gas and electricity. Since the beginning of this year, the input material prices of the steel industry such as iron ore, coke, steel billet and steel scrap have increased by 20-30% from 2010.

Meanwhile, the real estate market in 2011 has been actually falling into frozen conditions. This effected and reduced the steel consumption and increased the steel inventories.

Presently, steel inventories reach 500,000 tonnes while the allowable average stockpiled volume is only 250,000 tones. As calculated by VSA, steel enterprises have to pay some 150 billion dong per month for this steel inventory.

Another reason reduced the steel consumption is a widespread investment situation without scheme, which resulted in supply exceeding demand in the steel industry.

According to the figure from the Ministry of Industry and Trade (MoIT), the country has 65 steel projects with designed capacity of from 100,000 tonnes per year and higher, including 58 domestic projects and seven FDI (foreign direct investment) projects, with total investment of 41.623 trillion dong and $19.878 billion.

Big steel inventory together with high bank interest rate while selling price below the production costs is pushing many steel enterprises to the brink of bankruptcy. – Source: Vietbiz24.com

Tags: Vietnam steel industry, Vietnam steel market, Vietnam steel prices