Steel industry faces surplus due to setting up of new projects

Chairman of Vietnam Steel Association, Pham Chi Cuong told the Thoi Bao Kinh Te Viet Nam newspaper that the steel industry is facing problem of plenty as the stored steel volume is in surplus as large number of new mills continue being built.
According to the current arrangement, steel projects capitalized at less than 1.5 trillion dong will be licensed by local governances but the chairman still did not know why several steel mills in remote areas (where consumption market is very small such as Son La province) are continued being built.

He added that the stored steel volume of May was around 430,000 tons while monthly average ranged between 200,000 and 300,000 tons only.

For example, a steel mill with a designed capacity of 130,000 tons in Son La was kicked off amid the steel surplus. In addition, Son La is adjacent China—a strong exporter of steel so the economic effectiveness of the project should be re-considered, he proposed. Licensing such a steel mill is wastage.

Until April 19, total rolled steel output of the country was 8.9 million tons, however a large number of new steel projects were being licensed or in the first construction phase, meaning that the output will be increased rapidly. Meanwhile, a lot of steel factories are operating at less than full-capacity.

At the meeting with Ministry of Industry and Trade, Vietnam Steel Corp complained that with the current interest rates, they have to pay more 300,000 dong of monthly interests for one ton of steel to the banks. Otherwise, if one ton of steel at 19 million dong is stored and sold in one month late, the volume will be priced at 19.3 million dong in the later month. Actually producers cannot sell steel at the price of 19.3 million dong/ton.

According to supply and demand law, with a total current capacity of 9 million tons a year while the best consumption is 5.6 million tons, who will take remaining 3.4 million tons, he stressed.

It is said that steel mills enjoy benefits from low electricity prices. In the chairman’s point of view, Vietnam tried to keep electricity price stable for a long time. If the price is increased, steel industry as well as entire economy will get shock. The decision on quarterly adjustment in electricity price is also reasonable.

In structure of steel price, electricity price and other costs account for less than 10% and costs of materials (coal, ore, billet and scrapped steel) take up more than 90%. In his opinion, the rule on keeping 10% of output for stabilization purpose is unnecessary because the sector still has 500,000 tons of billet and 300,000-400,000 tons of steel products every month.

Presently, Vietnam is in surplus of construction steel, capacity is surpassing demand, he confirmed. – Vietbiz24

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