Steelmakers scale back production as consumption falls

The domestic steel industry is cutting back on production in a big way as it faces unsold stockpiles and struggles to increase exports because it is not competitive enough.

Its problems are compounded by increasing imports of cheaper steel products, local reports say.

The construction season is nearing its peak, but instead of increasing capacity, steel factories nation-wide are scaling back production, leading to fiercer competition.

The Pomina Steel Mill is among the companies which has been functioning at 50 per cent of its production capacity for a few months due to low demand.

The Viet Nam Steel Corporation (VNSteel) is facing a similar situation with sales down 50 per cent in the last few months, forcing it to decrease production and prevent excessive stockpiles.

Smaller companies in the domestic market have also been experiencing dull business.

The Hoang Hung Trade and Services Company in HCM City’s District 12 has suffered a 60 per cent decrease in its sales in the last three months, director Nguyen Van Lam told Sai Gon Giai Phong (Liberated Saigon).

While leading steel corporations and companies have been cutting their capacities by as much as 50 per cent, smaller firms in the field have been running at 30-40 per cent of their designed capacities, while some have stopped production altogether, according to the Viet Nam Steel Association (VSA).

The association says Viet Nam produced 2.21 million tonnes of steel in the first five months of the year, a year-on-year increase of 281,000 tonnes or 14 per cent. Total consumption was estimated at 2.14 million tonnes, up 18 per cent against the same period last year.

The country had about 320,000 tonnes of finished steel products in stock in May and 520,000 tonnes of steel billet (or scrap iron) for production in June. During the first six months of the year, over 3 million tonnes of steel products and materials were imported into the country, according to the VSA.

The current stock of steel, including imports, could meet domestic market demand till the end of the third quarter of this year, the director of a steel production company said on condition of anonymity.

He said this was the reason for local firms scaling back their production recently.

Officials from VNSteel and Pomina Steel both said the decrease in demand was because of low consumption which, in turn, was caused largely by prolonged inflation and increased interest rates.

Decree 11 on cutting public investment was another factor in the low demand for steel products.

Meanwhile, the situation of excessive production was getting worse with a number of new projects with capacities of between 250,000-500,000 tonnes per year set to be put into operation this year. The total capacity of the new factories is expected to exceed 2 million tonnes a year.

Many companies have been trying to export their products to deal with the situation, but are facing challenges posed by policies as well as international competition.

Do Duy Thai, general director of Pomina Steel, which has been exporting its products to Cambodia and Laos, said the export value was still modest, especially at this time.

To be able to export to Cambodia and Laos, the products had to be priced very competitively, which was a disadvantage for the Vietnamese steel industry, he said.

The high interest rates on loans and decreasing production capacities in the domestic market were making it difficult for Vietnamese steel products to compete with other producers from ASEAN countries as well as China and Australia, Thai said.

Producers in these countries exported steel in large volumes, said Thai, and were competitively priced because they enjoyed preferential tax policies. Vietnamese producers, however, exported in small volumes and did not have any tax support, he added.

Export tax

Yet another challenge facing the steel industry is a recent proposal by the Ministry of Industry and Trade to impose the export tariff from 1.5 per cent to 3 per cent to prevent it from benefiting from low electricity price rates, according to the VSA.

The proportion of power in the cost of steel products is only around 1.2 per cent, but the increase in export tax would pose another challenge for local exporters already facing many difficulties.

Other countries had policies to support the development of their steel industries, said VSA President Pham Chi Cuong, suggesting that the exports of steel products should not be taxed.

The tax would create more difficulties in solving the problem of excessive domestic production, said Cuong.

The VSA has asked the Government to provide policy of support for steel exports in order to reduce the massive trade deficit in the industry, which rose to US$6 billion last year.

Steel exports last year totalled $1.3 billion against imports of $7.1 billion for 1.29 million tonnes and 6.4 million tonnes, respectively.

The first half of this year saw steel export revenues reach $880 million, with shipments made mainly to Cambodia, Malaysia, Indonesia, mainland China, India, South Korea, Singapore, Taiwan, Thailand, Laos and Australia.

However, experts say that export is not the only solution. Local producers should build up their presence in the domestic market, they say.

Last year, 5.6 million tonnes of steel products were consumed in Viet Nam. Experts say consumption potential in the domestic market is huge and producers should find ways to win back their market share instead of focusing on trying to increase their exports. – VNS

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