Steel firms feeling the heat

Economic vulnerabilities are hurting steel companies.

“Our stockpiled steel in early 2011 was 10,000 tonnes against 3,000 tonnes in the previous year. The sales volume saw a sharp decline while production curtailed by half,” said the director of a northern steel firm which came into being three years ago with an annual production capacity of 180,000 tonnes.

“Things could not be ameliorated unless the state loosens its tightening monetary policies to spur construction projects’ implementation,” he said.

He added that with banks’ current high lending rates of around 20 per cent, per year even commercial firms could not dare hoard products for sale because they would incur heavy losses.

A number of steel firms, however, are on the horns of a dilemma as they cannot stop operating amid the current stagnant market and huge steel stockpiles.

“Some companies with high borrowing costs have to sell products at loss to recoup capital and operate perfunctory production,” he continued.

Because the supply far outruns the demand, local firms critically oppose to the recent proposed Ministry of Industry and Trade’s (MoIT) draft to force businesses to put in reserve 3-5 per cent of their output.

This compulsory stockpile means businesses will have to let part of their finance remain idle in their current financial distress, said a Vietnam Steel Corporation’s financial expert, who wished not to be named.

Hoa Phat Group general director Tran Tuan Duong admitted his group’s steel sales figures in June saw a plunge compared to some previous months.

Duong said with Hoa Phat’s monthly capacity of over 50,000 tonnes, raw material reserves for production at the firm would be tantamount to the production capacity while for small firms such reserves would reach 20-30 per cent, much higher than the MoIT’s drafted requirement of 3-5 per cent.

“The possibility for the state to green-light interest subsidy to help firms keep stockpiles is unlikely in the current difficult market conditions,” Duong said.

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