News Room - Steel Industry

Posted on 30 Nov 2009

Small steel mills forced to stop production

Despite the warnings on steel oversupply, local governances still have licensed many steel mills with small capacity and backward technology. Under current laws, they [local governances] have authority to grant license to steel projects, said Pham Chi Cuong, chair of Vietnam Steel Association (VSA).

 

In his opinion, because all local governances want to have steel mills with expectation to improve the provinces/cities' economic structure so they ignored the warnings on steel oversupply.

 

Till late 2009, Vietnam will produce 1.8 million tonnes of cast iron, 4.5-4.7 tonnes of steel billet, 6.7-7 million tonnes of construction steel, two million tonnes of cold rolled steel, and 1.2 million tonnes of plate steel sheet. As estimated, the steel supply has surpassed two times of demand, Cuong remarked.

 

It is seen that in near future, steel mills with small capacity could have to stop production or go under bankruptcy. Do you think about this?

 

This can be predicted because from now to 2012, extra a series of steel mills capable of producing 6-7 million tonnes a year will be put into operation. The competition in domestic market will be fiercer. By that time, small sized mills will have to close door and become the burden of localities because investors did not pay attention to sustainable development.

 

The spreading development of steel projects was sourced from the less effective control of functional authorities. Some provinces/cities lack strict control on steel projects because of their hasty in economic development.

 

In October, the price of domestically produced steel was forced to reduce many times against the imported steel from Asean. Can you explain in details on the competition?

 

The increasing steel imports from Asean into Vietnam in recent time are the result of Vietnam's tariff exemption (0 percent) according to Asean Free Trade Agreement (Afta). However, the Asean steel flood into Vietnam is temporary because Asean countries are boosting exports of steel at low prices. But factually, Vietnam is suffering heavy pressure of China made steel. China with huge steel production, financial incentives and other supports is helping pushing the steel import to foreign countries including Vietnam.

 

Until November 15, 620,000 tonnes of China's cold rolled steel were imported to Vietnam while our country's consumption totals at approximately one million tonnes. Therefore, Vietnam's steel sector will have to join the tense competition with China made steel.

 

After three price reduction phases, till the middle of November 2009, steel prices started to surge again. This was good news for steel industry. But foreign made steel with lower prices could abuse the situation to flood Vietnam. What is you opinion?

 

Last month, local firms continuously reduced the steel prices because of the unsatisfactory sales. In November, the domestic steel market signalled to recover so local steel makers had to raise prices to avoid losses. In addition, the US dollar/dong forex rate difference, prices of steel billet, scraped steel and finished steel on the world market also increased again so a rise in Vietnam made steel price is a result.

 

On November 17, most steel producers hiked the steel price by 200,000 dong per tonne. Lately, Vietnam Steel Corp decided to raise the price by 100,000 dong per tonne.

 

In my opinion, steel companies should not increase prices massively. They need to be more cautious in considering the country's steel demand and supply.