Oversupply brings bitterness to steel manufacturers

Vietnam now has 2.67 million tons of steel in excess, while the figure is expected to increase towards the end of the year, since some steel projects with the designed capacities of 250,000-500,000 tons become operational.

The information that nine more steel projects will become operational in 2011 and four others in 2012, has caused big worries to steel manufacturers.

If the Resolution No 11 on curbing inflation which orders to delay many investment projects was not released, the structural steel output would reach the growth rate of 10 percent this year. However, even with the Resolution 11, the output has far exceeded the demand.

“The steel consumption is just equal to 50-60 percent of the structural steel capacity of enterprises. The domestic market never lacks steel,” said Pham Chi Cuong, Chair of the Vietnam Steel Association (VSA).

Though having been warned about the steel overproduction, many more investors still want to develop steel projects. Duong Doan Luc, Chair of the Song La Cast Iron and Steel Joint Stock Company, said on Dau tu, that his mill is making cast iron and ingot steel from the mines exploited from the 13 iron mines in Son La province. However, the company still wants to make structural steel, because it just needs to make some more investments in order to make finished products.

“It will not be costly if we make finished steel from ingot steel right when the ingot steel is at high temperature,” he said, believing that his company will have bigger advantages than the other steel mills, which needs to melt ingot steel first, and then laminate structural steel.

Meanwhile, many steel manufacturers are tasting the bitterness in the steel production.

Dau tu has quoted its sources as saying “that the Van Loi Steel Group is seeking new partners to share its investments deals at the Ha Tinh Steel Complex project and some other projects.” The Vietnam Steel Corporation has confirmed that it has received the invitation for capital contribution from Van Loi.

The problem is that Van Loi is meeting a lot of difficulties in arranging capital to complete the investments. The above said investment project of Van Loi has the total investment capital of 1400 billion dong, while one trillion dong has been poured into the project so far. However, the investor still cannot move ahead with the project, because banks, due to the policy on tightening credit, do not make disbursement.

Many investors have to withdraw from the steel projects after they made noisy statements about the feasibility of the projects. The Dinh Vu Steel Joint Stock Company is an example.

In March 2006, the ingot steel mill of Dinh Vu which had the investment capital of 400 billion dong, was put into commercial operation. The mill has the designed capacity of 200,000 tons a year, using Chinese technology and equipments.

According to the audited finance report, in 2009, Dinh Vu got 1,420 billion dong in turnover, a decrease of 34.2 percent in comparison with 2008. The gross profit in 2009 was – (minus) 48.6 billion dong, while the figure was – (minus) 36.3 billion dong in 2008.

In 2009, Dinh Vu raised its chartered capital from 229 billion dong to 342.56 billion dong. However, with the heavy losses in the last two years, the stockholder equity had dropped to 17.88 billion dong by December 31, 2009, and the accumulative loss had reached 341.2 billion dong.

The company has changed its business registration certificates nine times due to the changes in shareholders. The founding shareholder of Dinh Vu sold 20 percent of stakes to Australian VII Group in August 2009, bringing VII the right to manage Dinh Vu with 70 percent of stakes.

Thoi bao Kinh te Vietnam has quoted VSA as saying “that the Vietnamese steel industry has been very successful when exporting a record volume of 1.3 million tons of steel in 2010, earning 1.3 billion dollars. However, the figure proves to be too modest if comparing with the import turnover of 7.1 billion dollars in the same year.” – Vietnamnet

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