Steel industry facing problems

From now up to the end of 2011, Vietnam will face oversupply position in construction steel products. Meanwhile, there will be many other steel mill projects that would be put into operation. The domestic enterprises will cope with harsh competition. In that context, many firms have chosen to export their products overseas as the most feasible solution. However, with the proposal on increasing the export tariff on steel billet and other steel products issued by the ministry of finance, Vietnam Steel Association (VSA) stated that would cause difficulty for the domestic steel producers but also badly affect the investors.

Vietnam Steel Association (VSA) has recently revealed that the whole country’s production capacity of construction steel reached 8.99 million tonnes per year, while total steel consumption was estimated at 6.32 million tonnes, or 2.67 million tonnes of steel surplus. The association had previously warned about the surplus vision in the general development plan to be approved in 2007. The increasing trend in steel surplus was predicted to continue.

Particularly, in June 2011, there have been some projects to be put into operation with total designed capacity of over 2 million tonnes per year, including many large-scale projects such as Viet Steel Joint Stock Co raised production capacity of steel bars and steel scrolls to 500,000 tonnes per year, Thai Nguyen province-based Thai Trung Steel Co has designed capacity of 500,000 tonnes per year, Central Region Steel Co in Da Nang City of 250,000 tonnes per year, Hoa Sen Group of 200,000 tonnes per year, Pacific Steel Co in Da Nang with specified products of steel bars, steel scrolls of 250,000 tonnes per year, An Hung Tuong Steel Co Ltd in Binh Duong province with designed capacity of 250,000 tonnes and Dong Tien Steel Co Ltd of 150,000 tonnes.
The association revealed that in the first five months of this year, Vietnam has produced total construction steel of 2.21 million tonnes, increasing by 14 percent year-on-year, while total consumption volume of 2.21 million tonnes, up 18 percent. That’s not to mention the stockpiled steel products in May of 320,000 tonnes and steel billet to be used for production purpose in June of 520,000 tonnes. The current supplies have already surpassed demands although the new steel mills have operated at 50-60 percent of designed capacity. At the same time, Vietnamese government has currently concentrated on limiting inflation, stabilising the macro-economy and social welfares via cutting down public investment, and cancelling some ineffective investment projects. In that context, many enterprises decided to export steel products overseas.

VSA’s chair Pham Chi Cuong stated that the steel enterprises have successfully exported 1.3 million tonnes of steel products in 2010, bringing in total export turnover of $1.3 billion, up 162.92 percent in volume and 174.18 percent in value. However, at the same time, Vietnam had import cost of $7.1 billion.
Noticeably, the local firms have only exported some steel products, of which construction steel contributed at very low ratio.

Recently, the ministry of finance has suggested raising export tariff on construction steel products to 1.3-2 percent and steel billet of 3 percent because the enterprises have benefited $10-15 per tonne from applied low electricity price. However, Cuong added that in steel production process, electricity costs only counted for 6 percent of total cost. Therefore, the profit gained from steel products was not brought in by low electricity price. In steel production process, making steel billet consumed largest electricity at 600 KWh/tonne and other products of 100-120 KWH/tonne.

If Vietnam imposes export tariff on steel products, the situation will be worse because of reduction in steel export and increasing oversupplies.

In fact, Vietnamese steel firms have entered harsh competition with other countries in the Southeast Asian region, China and Australia. These countries have also exported steel products with large volume, but still enjoyed export incentives, so their products have competitive prices in world market. Meanwhile, Vietnam’s steel export remains in small quantity with no support in taxes, resulting in low competitiveness.

With current oversupplying situation, it’s essential for the local steel enterprises to find export markets. However, Cuong emphasized to reconsider imposing export tariff on steel producers. – Thoi bao ngan hang

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