News Room - Steel Industry

Posted on 20 Oct 2009

Cheap foreign steel dominates domestic market

Steel sales from September have signalled a slowdown and Vietnamese businesses are struggling against foreign steel imported freely from Asean countries, which have lifted import tariff barriers. Currently, the preferential tariff for finished steel imported from these countries is 0 percent while steel imported from non-Asean countries is still entitled to an import tariff rate of 15 percent.

 

Nguyen Tien Nghi, vice chair of Vietnam Steel Association, confirmed that there is a swap of market share among foreign steel in Vietnam, particularly rolled steel that come from Indonesia, Thailand, Malaysia and others but has no brand names.

 

In 2008, steel imported from China accounted for up to 64.5 percent of total imported steel, steel imported from Asean countries made up only 11.7 percent. Since July, the market share of steel imported from China fell to 3.8 percent while the market share of steel imported from Asean countries was 44 percent.

 

In September, steel imported from Asean countries accounted for as much as 74 percent of total imported steel while steel imported from China was only 1.7 percent. Trading companies import some 40,000 tonnes of rolled steel a month for domestic sales, mainly by sea. The imported rolled steel is mainly sold in southern provinces, which are close to supply sources from Thailand and Malaysia. Only small amount of the rolled steel was transported to the north because of expensive transport costs.

 

Nghi added that "Because of the import tariff rate of 0 percent, it is likely that businesses can buy cheap steel billet from Russia, SNG countries. Because of the economic crisis and huge stock of steel billets, the import price of the steel billets imported from those countries is some more or less than 10 million dong a tonne."

 

Meanwhile, steel selling prices of domestic businesses are still staying high because of impacts from various factors including steel billets, scrap steel, petroleum and the forex rate.

Currently, the selling price of Thai Nguyen Steel and Iron co fluctuates at 11.4-11.6 million dong a tonne. Selling prices of Southern Steel co, Vinakyoei range from 11.5 million dong to 11.7 million dong a tonne, 1.1-1.7 million dong a tonne higher than of foreign steel.

 

The retail sale price to consumers at northern shops is 12-13 million dong a tonne; the retail sale price at southern shops 12.2-13.5 million dong a tonne. Since the start of this year, domestic steel prices have already been increased nine times. With such a situation, experts forecast that the market share of domestic steel would be continued being dominated by foreign steel.

 

What is notable is that foreign steel with origins of Asean are imported publicly because Vietnam has committed to enter Asean Free Trade Area (Afta), under which goods from those countries are entitled to tariff preferences for integration. Because the competitive capacity of domestic steel businesses is not strong, they cannot import steel to Asean countries offering tariff preferences but also have to suffer from high pressure on cutting prices in the domestic playing field.

 

Namely, facing high pressure from foreign steel, Vietnam Steel Corp (VNS) announced that it reduced the selling price at the manufacture for six-eight diameter rolled steel by 200,000 dong a tonne compared with the rate in mid-September to 11.32 million dong a tonne (VAT is exclusive), which however is still high. Some other steel companies also followed such a move.

 

An official from Thai Nguyen Steel and Iron Co confirmed that this was the first time Thai Nguyen had to reduce the selling price for construction steel after previous continuous increase. The price decrease was aimed to stimulate the market because steel sales in September slowed down.

 

Nguyen Tien Nghi said that facing the movements that were considered unfavourable for domestic steel businesses, on one hand Vietnam Steel Association was asking relevant agencies such as border gate customs agencies to carefully scrutinise steel with origins of Asean, Particularly regarding the requirements on 40 percent localisation and two-step production technology, that is producing from iron ore or scrap steel into steel billets which are then be laminated into steel.

 

However, Nghi himself also confirmed that this measure hardly prevented massive import of Asean steel into Vietnam because of too cheap prices. In long terms, Vietnam Steel Association warned domestic steel businesses of promoting investment, reforming technologies in order to improve their competitive capacity.

 

"With small production scope, backward technology, huge expenses and others, domestic steel businesses will hardly be able to compete with foreign products and it is impossible to let domestic consumers suffer from losses because of weak domestic businesses," said Nghi.

 

Nguyen Tien Nghi said that "this year, total supply of construction steel across the country will be about seven million tonnes while demand for steel is now merely 4.5 million tonnes a year. By the end of this year, there will be more steel laminating plants established which will make supply far exceed demand for steel. The country is also witnessing a trade deficit. Namely, import of construction steel is up to 700,000 tonnes while export is only 150,000 tonnes a year. Many steel import experts warned that with cheap import steel and downward prices of steel billets, in the upcoming time, if domestic steel businesses do not consider adjusting selling prices, foreign steel will account for large market share."