Steel producers cry about high financial burdens and electricity cuts

Steel producers foresee that 2011 will be a very difficult year for them especially because they have to pay high interest rates for loans, and face electricity cuts.

The stock market on January 25 was as gloomy as it was in previous days. Liquidity was low and the total trading volume was a mere1430 billion dong, a reflection of the downward trends. Steel companies were no exception, as all of the listed shares of steel companies saw a decrease in prices.

Steel mills will “sit idle”?

According to the Electricity of Vietnam EVN, if it cannot mobilize the maximum capacity of thermopower plants, in the six months of the dry season, the electricity shortage may reach six billion KWH, the highest level so far.

The announcement should be understood that large scale electricity cuts may occur, and steel mills, which have been criticized for consuming too much electricity because of using backward technologies, will have to sit idle for many days. This also means that the steel output volume will decrease.

Besides, it is expected that the electricity price will increase as of March 1, 2011, which means that production costs of steel will increase thus pushing sale prices up.

The Ministry of Industry and Trade has said that there are too many steel projects and steel mills have been consuming too much electricity. Therefore, only the steel mills listed in the steel industry development strategy will be prioritized to use electricity. Meanwhile, steel projects which spontaneously developed will have to arrange electricity themselves.

At present, the price of electricty applied to steel producers in Vietnam is just equal to ½ of that in other regional countries. This explains why many foreign investors have rushed to come to Vietnam to set up steel mills which consume large volumes electricity and pollute the environment.

Experts have said that the government, being aware of the risks, may tighten policies on managing the supply of electricity.

Debts burdening steel producers

A common trait of listed steel companies is that they have big loans (the loans may be double the stockholder equity). This explains why in the current context of the high interest rates the loans are burdening enterprises and making their profit decrease.

Besides loans for working capital, steel mills have also borrowed money to import equipments and materials. The appreciation of the dollar has made imports more expensive, thus making the foreign currency debts become a heavy burden on enterprises.

In the report explaining the loss of 61 billion dong in the fourth quarter of the 2009-2010 fiscal year, Ton Hoa Sen Company said that the financial expenses alone increased by 64 billion dong over the fourth quarter of the previous year.

Other steel producers, including Huu Liem A Chau, Vietnam-Italia, Tien Len, have also reported sharp falls in profits due to the high interest rates for loans and fluctuating steel prices.

Since the profits of steel companies have been decreasing, the shares of steel companies are not favored by investors at this moment. Tien Len Company has to cancel its plan to sell 8.2 million shares because it cannot find buyers.

Steel prices up, but steel producers cannot earn any profit

The steel prices in the domestic and the world market have been increasing significantly over the past few days. In the world, the price increases have been blamed on the prolonged flood in Queensland in Australia which provides 50 percent of coke coal to Asia. This has prompted speculators to store steel, thus pushing the prices up.

Meanwhile, the demand for iron ore imports from China has increased by 20 percent over the last two months, which has also contributed to the ingot steel and finished steel product increases.

However, the price increases are not earning profits for domestic enterprises. It is because domestic enterprises have to import ingot steel to laminate steel products domestically. The higher input material prices have led to higher production costs.- Nguoi lao dong

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