Steel prices plummet due to low demand, stiff competition, inflation

After the first bustling two months of the year, the steel market has become quiet since the end of March with very low demand, even though it is now the high construction season. The steel prices have dropped by 200,000-400,000 dong per ton, now selling at 15.6-16.2 million dong per ton with deliveries at steel mills.

According to the Vietnam Steel Association VSA, though the first quarter of the year was the low construction season, the demand for structural steel increased abnormally by 40-50 percent in comparison with the same period of 2010. The prices have been decreasing since the beginning of the second quarter due to the low demand.

Explaining this, VSA said that the ingot steel in the world market recently tends to decrease. Meanwhile, domestic steel mills have to lower the sale prices in order to make their products competitive to the imports from China and South East Asia.

Especially, the demand for steel has been decreasing sharply due to the sharp cuts of public investments. A lot of construction projects funded by the state or local budgets have been postponed or delayed as a part of the plan to fight inflation. Though steel manufacturers have increased the discount rates for agents from 500,000 to 900,000 dong per ton, given support in the transportation and stimulated the demand, the purchasing power has not been improved considerably.

The domestic prices always go up and down in accordance with the world’s prices. Meanwhile, the steel price in North America has dropped to 680-700 dollars per ton, decreasing by 50 dollars per ton. In Turkey, the steel price has decreased by another 30 dollars per ton from April.

Therefore, analysts comment that the new price levels of 15.6-16.2 million dong per ton are still higher than the prices in regional countries and in the world.

Domestic steel mills still keep the sale prices at high levels because of their high production costs and high service fees. The handling and transportation fees, for example, are two or three times higher than that in other regional countries. Domestic steel mills now still have to pay high for depreciation, while the steel mills in regional countries have finished the depreciation periods.

As such, domestic steel mills not only have to compete with each other, but also have to compete with imports which are always cheaper than domestic products. Analysts say they cannot see any signs showing that the steel prices would increase in the time to come, especially when the rainy season is coming in the south, and the world’s prices are still on the decrease.

At the meeting reviewing the steel market performance in the first months of the year, which was held several days ago, Acting General Director of the state owned Vietnam Steel Corporation (VNSteel), Le Phu Hung said in order to help the state stabilize the market and curb inflation, VNSteel always has to sell steel at the prices lower than the market prices.

In 2008, for example, the corporation’s sale price was once lower by two million dong per ton than the market price. Meanwhile, since the beginning of 2011, VNSteel keeps the sale prices lower by 250-600,000 dong per ton than the market prices. With 112,000 tons of steel sold in the first quarter, VNSteel lost 41.7 billion dong.

Currently, the supply is clearly higher than the demand, but in some places, the short supply has pushed the prices up. State officials believe that the problem lies in the distribution chain.

Deputy Minister of Industry and Trade, Ho Thi Kim Thoa said big steel manufacturers have still been relying on private run distribution networks, while they have not built up distribution networks of themselves. As a result, VNSteel and other manufacturers still cannot control the sale prices in their systems.-TBKTVN

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