Steel prices drop significantly

Steel price dropped significantly by more than 3 million dong per tonne but purchasing power is still low. Many steel retailers are suffering big losses because of bulk storage.

In early 2010, construction steel price in HCM city market was under 12 million dong per tonne. However, from March, steel price continuously went up. In mid April, it soared to 15.5 to 15.7 million dong per tonne, an increase of 3.5 million dong per tonne for over a month.

Steel makers, at that time, said that the reason for this was because of the world steel billet price increased to 600 US dollars per tonne (up by nearly 100 US dollars per tonne), and the increases in exchange rates, petroleum, electric and water costs also resulted in the production cost going up.

According to understanding, at that time, numbers of steel firms had been using previously imported steel billet for production purpose with purchasing price of just over 500 US dollars per tonne, which means the sales price would have been around 12.5 million dong per tonne. Nevertheless, many steel firms offered the sales price of more than 15 million dong per tonne, making profit of 2.5 million dong per tonne, a super profit level in steel manufacturing industry.

Industry insiders revealed that many firms managed to get about 60 percent of domestic steel billet at a price of a few dozen dollars a tonne less than the price of imported steel billet, the profit therefore was much higher.

However, from May, construction steel price started to drop continually. Sales price at the factory ranges from 11.6 to 11.7 million dong per tonne for scrolled steel and 12.5 million dong per tonne for steel bars.

The evidence is, in March, members of Vietnam Steel Association (VSA) attained a record sales volume of 568,000 tonnes, but by April, sales volume was only 299,000 tonnes, and continued to fall to 283,000 tonnes in May.

VSA forecasts that consumption would even be gloomier in June. Nguyen Tien Nghi, vice chair of VSA said that since the consumption is slow, the steel inventories of firms are currently very large. There are 371,000 tonnes of finished products and 560,000 tonnes of steel billet used for production in stock.

According to experts, since the stockpile is too much, rainy season (low season for construction) has started in southern provinces leading purchasing power to usually go down, plus the declining trend in steel billet price in the world market, it is possible that steel price would continue to fall.

Surveys from building material stores in HCM City shows that buyers are sparse. The retail price recently dropped to 13 million dong per tonne but there were only a few buyers as consumers want to continue waiting for further price reduction.

Sell out in order to recover capital

In March, there was news that as iron ore price increased by 40 percent compared to the same period of last year, steel price would then increase, leading steel billet price to go up to 630 US dollars per tonne.

There was also news in the domestic market saying that in order to curb trade deficit, the government would restrain import of some goods including construction steel. This information has made big retailers to forecast that the steel price would increase sharply so they scrambled to get large quantities.
Steel makers took this chance pushing the price up, causing shortage of supply, and then making the price to rise without cease.

However, as steel price was pushed up to high in a very short time, the market reacted reversely. The buyers turned their backs, suspended the construction plans as being unsure how high the price could go. Many large construction projects had to reconsider construction plan and even suspended works for some time.

The purchasing power was slowed down obviously, hence, from the beginning of May, in order to boost the sales; steel factories have continuously offered price reduction, causing retailers with bulk storage to suffer losses.

Tran Thanh Phat, director of a steel business firm in District 10 said that this fluctuation of steel prices has caused some big retailers to incur loss of some billion dong, while small stores are suffering from hundreds of million dong loss. There are still many retailers with high purchasing price steel finding ways to push sales to limit their losses. Some steel makers mentioned that with the current sales price, they are suffering loss of over one million dong per tonne.

An expert with many years of experience commented that this was a foreseeable lesson but firms still ignored and allowed each other to push the prices up. When purchasing power dropped dramatically with full warehouse inventory, they accepted discounts for goods clearance as well as for repaying high interest bank loans.

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