Steel Price to Go down

Despite the Government’s efforts to control inflation, prices of several key commodities are rocketing, especially the steel price which has climbed by more than 4 million per tonne in a month. The more than 30 percent increase in steel price in such a short time puts heavy pressure on the domestic construction market.

Causes

The current steel price fever is not the first. In 2009, the steel industry struggled through difficulties arising from the global economic crisis; the steel price was thus relatively stable. In other years, steel prices ballooned in some months due to fluctuating demand. However, the steel price has never increased as much and as rapidly as this year.

The current steel price is not a result of supply and demand imbalance, according to the Ministry of Industry and Trade’s report. Steel production in the first quarter of 2010 was estimated to rise 7.2 percent year on year to 1.2 million tonnes. Even if steel sales of the Vietnam Steel Association’s members had increased 54.4 percent from a year earlier to 1.2 million tonnes, steel ingot still in stock was measured 110,000 tonnes in early April.

In fact, prices of input materials like steel billets, iron ore and coal are increasing every day on global markets. However, the Vietnam Steel Corporation (VNSteel) maintains stable production despite the growing prices of inputs such as iron ore, coal, oil, steel billet, steel scrap and electricity, and the termination of tax breaks on production investment, import duty reduction in accordance with WTO entry roadmap, high lending interest rate of 17-18 percent instead of 4 percent in 2009. These difficulties impact the profitability of enterprises, but the output of rolled steel still climbed 22.6 percent year on year to approximately 360,900 tonnes.

The workgroup on steel price jointly administered by the Ministry of Finance and the Ministry of Industry and Trade is surveying actual production costs in steel producers and big steel distributors. Mr Nguyen Tien Thoa, Director of Price Management Department under the Ministry of Finance, said the ministry’s inspection teams initially found that several steel and cement companies were not using their capital properly.

Many signs show that the main reason for soaring steel prices is speculation by several producers and traders. They are driving steel prices to unacceptably high levels, which weakens consumers and distorts the market. However, no ministries have confirmed this.

Mr Pham Chi Cuong, Chairman of the Vietnam Steel Association (VSA), said many companies are storing large volumes of steel to intentionally drive up prices. Furthermore, sales agents also take advantage of market fluctuation to increase profits and create a fear of supply shortage.

Oversupply

According to experienced experts, in recent years, steel prices usually surge in construction season and then drop, on the law of supply and demand. The steel fever in 2008 was a dear lesson for steel traders as the price soared 70 percent before a free decline, causing huge losses for traders. They had to store millions of tonnes of steel while the demand was very low.

Amid surging steel prices, the Ministry of Industry and Trade has asked the Vietnam Steel Association (VSA) and Vietnam Steel Corporation (VNSteel) to report daily steel production costs of steel producers. According to VNSteel, the price hike in March and April may be caused by hoarding and speculation, as most produced steel is still in warehouses.

VNSteel said the current output of rolled steel for construction in the country has exceeded 7 million tonnes per year and VNSteel churns out nearly 4 million tonnes, while the country needs just over five million tonnes. Besides, according to the Vietnam Steel Association, construction steel inventory at manufacturers’ warehouses are around 200,000 tonnes, while the steel ingot reserve is as high as 530,000 tonnes. With the excess supply, the steel price will surely drop as steel manufactures compete to boost sales.

VNSteel also said that in the next three months, upward price pressure will diminish. Weather in European and North American countries will be more favourable for steel exploitation and transportation, helping increase supply to the market.

Tags: Vietnam steel industry, Vietnam steel prices