Firms steel themselves for big decisions

A domestic market glut has driven local steel producers into a spin.

“Consumption only covers 50-60 per cent of construction steel total production output and the market is never short of steel products,” said Vietnam Steel Association (VSA) chairman Pham Chi Cuong.

Van Loi Steel Corporation is reportedly sourcing new shareholders to share investment costs at its steel and iron complex project in central Ha Tinh province and some other steel projects in northern highland provinces.

According to a VSA source, the association was invited by Van Loi to buy stocks and partake in a steel project in a northern province.

Van Loi sourced new shareholders to share its financial burdens due to banks’ credit tightening policies. Accordingly, Van Loi’s Ha Tinh province VND1.4 trillion ($67.6 million) steel complex disbursed over VND1 trillion ($48.3 million) and struggled to source the remaining capital to complete construction.

The situation is even worse for Dinh Vu Steel Joint Stock Company.

In March 2006, the company’s VND400 million ($19.3 million) Dinh Vu steel billet plant was brought online with an annual production capacity of 200,000 tonnes employing Chinese technology.

According to audited financial reports, the company raked in revenue of VND1.4 trillion in 2009, down VND783 billion ($37.8 million) or 34.2 per cent against 2008. Its 2009 profit margin was down VND48.6 billion ($2.34 million) compared to 2008 (2008 profit was down VND36.3 billion against 2007).

The company hiked its chartered capital from VND229 billion to VND342.5 billion ($16.5 million) in 2009. However, as of December 31, 2009 the firm’s owner capital was merely VND17.8 billion due to loss-making production in two consecutive years 2008 and 2009. Its aggregated losses came to VND341.2 billion and total loan and debt amounted to VND900 billion ($43.4 million) by late 2009.

The firm reportedly revised its business registration license nine times and frequently altered shareholders. Its founding shareholders sold over 20 per cent stake to Australia-based Vietnam Industrial Investments Limited (VII) in August 2009. VII currently holds a ruling role at the firm through seizing a 70 per cent stake.

While steel firms are grappled with difficulties to source investments, domestic market steel prices are sliding.

In March 2011, steel sales plunged 30 per cent against February and around 400,000 tonnes of construction steel was stockpiled, higher than the average in the previous months. This made the steel price fall VND300,000-VND400,000 ($14.4-$19.3) per tonne in April and May.

VSA forecasts construction steel price to further fall due to oversupply and dwindling demand on the back of curtailed public investments. – VIR

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