Banks more cautious in providing capital to steel industry

Vietnam Steel Association (VSA) has reported that 2011 steel production and business saw a negative growth rate of 10-20% which forced banks to become cautious in providing loans to the sector.
Currently the steel inventory of VSA members is over 500,000 tons whereas the sales are very slow. In October, the country’s steel consumption reached approximately 300,000 tons only. The figure increased to 397,000 tons in November, down 23% against the year earlier.

Dinh Huy Tam, Vice Chairman of VSA said that 2011 was a very difficult year for the steel industry. Steel-intensive sectors such as shipbuilding, construction, manufacturing, real estate are under recession so the steel industry found it hard to boost sales.

In addition, the forex rate of Vietnamese dong against the powerful currencies namely USD, Yen, Yuan, Euro was rising, which caused the shortage of foreign currencies to import materials and led to high interest rates of VND. So, input costs of corporates increased.

Although no steel maker has officially announced bankruptcy, Dinh Vu Steel Co in the northern city of Hai Phong had to sell steel production plants to repay debts. So did Van Loi Steel Co.

Most of remaining steel enterprises are seeing a high stockpile and reducing production. Thai Nguyen Cast Iron and Steel Co, the country’s largest steel maker, said that its steel consumption was equal to only 70-71% compared with the same period of 2010 and it had to cut production output by 15%. Hoa Phat Steel Co, the second largest firm in the sector, also had to reduce the production capacity by 20% due to the difficult market, and Vina Kyoei Steel -7% of capacity against 2010.

Steel companies are facing a lot of hardships. If the situation is prolonged to few more months, profits from the start of 2011 will be gone, even losses, Pham Chi Cuong—Chairman of VSA stressed.

In the recent past, several steel companies accepted to sell at lower prices, dump the market to enhance consumption and reduce the stockpile. Mr Cuong added that steel billet price is 14 million dong per tonne. Enterprises need to sell at 15.5 million dong per tonne for break-even, but factually, the companies have to offer steel at lower 200,000-300,000 dong/ton at this time.

Steel export has been boosted. During the first 11 months of 2011, companies exported 1.727 million tons of steel for $1.639 billion, marking the largest steel export turnover so far. Vietnam’s big steel importers include USA, ASEAN countries namely Indonesia, Thailand, Malaysia and Cambodia. Yet, Vietnam’s steel industry is facing anti-dumping lawsuits launched by some countries and fierce competition with Thai and Chinese steel.

The market is narrower while the stockpile is increasing; steel makers are yet unable to access loans. Banks are very cautious and prudential with borrowing proposals of steel-related companies for fear of hidden risks.

Data shows that Vietnam has 30 big steel producers and around 100 small steel firms. According to VSA, most steel producers are falling in dilemma as operating at 50% of their designed capacity. The companies who successfully got bank loans and produced steel by outdate technologies are meeting the most difficulties and hard to survive.

Credit tightening policies are forecasted to be tighter in 2012, so VSA predicted that around 20% of steel companies would be bankrupted. – Vietbiz24

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial