Pay back time for steel firms

According to the Ministry of Finance (MoF), steel firms had benefited from cheap power prices.

In reality, from March 1, 2011 the average power price stood at VND1,241 per kWh (up 15.3 per cent on average against the previous level) while that sold to steel firms was only VND535 per kWh. Thus, in churning out a tonne of steel products steel firms would enjoy profits ranging from VND214,000 ($10) to VND321,000 ($15) depending on steel furnace technology level on the back of power price differences.

The MoF proposed to impose 3 per cent export tariff on some sorts of steel products including construction steel, cold rolled steel, steel pipes and galvanised iron sheets with an aim to put a cap on the export of such products.

Earlier, in August 2010 Vietnam power authority Electricity of Vietnam (EVN) proposed the prime minister require the developers of big steel projects to self build their power plants and sell extra power output to the national grid.

According to EVN statistics, the price of power sold to the steel sector is currently 8.12 cents per kWh in Thailand, 14.1 cents in Singapore and 6.7 cents in Indonesia. That was why investments were poured into steel production in Vietnam over the past couples of years, according to relevant state competent agencies and industry experts.

EVN reportedly spent over VND30 trillion ($1.45 billion) into developing power network and sources in the past years to ensure sufficient power supply to the steel sector which now stands at around 3,500 million kWh.

Vietnam Steel Association (VSA) chairman Pham Chi Cuong, though echoing the proposal to sell power at prices set by market rules to the steel sector, assumed power prices only made up a small proportion of steel items’ production costs.

According to VSA, steel billet production was the biggest power consumer (600kWh per tonne) among steel items which use an average 100-120kWh per tonne only. Meanwhile, steeping up local steel billet production is a state investment priority to ease dependence on imported products. The VSA said 11,300 tonnes of steel billets exported in 2010 were first imported by commercial firms that it was all exported.

The VSA also suggested bolstering steel exports to expand output markets, ameliorate investment efficiency of businesses and ensure employment.

A senior industry expert said investors jumping into steel production would continue due to the sector’s high profit margins and a glut of steel would be inevitable.

In 2010 after-tax profits of privately-run Hoa Phat Group, a leading steel manufacturer, was VND1.376 trillion ($66.4 million) with 36 per cent coming from steel trading. Pomina’s 2010 after-tax profit of around VND660 billion ($31.8 million) chiefly came from the steel business.

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