In 2010, Vietnam’s market of construction materials in general and the steel market in particular suffered from many changes due to influences from the world market. Facing objective difficulties, the country’s steel industry strived to find its own way to be more self-motivated in the regional and global playground. Vietnam Business Forum reporter Luong Tuan interviewed Mr Pham Chi Cuong, Chairman of the Vietnam Steel Association (VSA), on the issue.
In 2010, Vietnam’s steel industry made a great turning point when being successful in producing its first zinc - plated corrugated iron sheets. However, there were still many weak points. Which causes are behind the situation?
In 2010, the domestic steel market continued its growth impetus. The industry’s domestic production increased an estimated 18 percent. Vietnam reportedly produced 60 percent of steel ingot and imported the remaining 40 percent. However, of the total domestically made steel ingot, Vietnam must import 80 percent of scrap materials. Thus, the steel production still depended on material prices in foreign markets.
Although the world steel market suffered from many fluctuations in 2010,steel price in the Vietnamese market still remained acceptable, standing under VND14 million per tonne. In my opinion, the price level was suitable with material prices in the world market. Compared to other Southeast Asian countries, steel price in Vietnam was not high. As a result, there were few steel products imported from Southeast Asian countries to the Vietnamese market. This showed that the quality of steel products, as well as the price of Vietnamese steel, is gradually getting closer to prices of the regional and world markets. Currently, the production output and consumption of steel in Vietnam and Thailand are at the top in Southeast Asia.
2010 also marked a breakthrough for the Vietnamese steel industry, successfully producing the first zinc - plated corrugated iron sheets with output of 30 million tonnes, contributing to easing dependence on imports.
The issue of interest rate was a hot topic in 201. How did the rising interest rate, particularly in the final months of last year, influence the steel industry?
The monetary policy lead to the increase of interest rates in the remaining months of 2010, causing certain difficulties for enterprises, especially those relating to the export - import field. Loans with high interest rates, of course, affected production and selling prices of products. If the current steel prices remain, steel traders will lose, and sales will slow. The difficulties will last till the first quarter of 2011 because the US dollar price continues to stay high.
In fact, the development strategy of the Vietnamese steel industry is not yet sustainable, thus any fluctuation of the world market can rapidly and strongly influence the domestic market. The situation is causing remarkable pressure on Vietnamese steel producers and traders, and reducing the industry’s efficiency. The fact is that steel enterprises can be profitable for months, but after only a month suffering losses they will be back the starting position.
In your view, what should Vietnam do to support the domestic steel market’s sustainable development?
In order for sustainable development, the Vietnamese steel industry should limit the volume of steel ingot imports, because over 80 percent of steel price is decided by ingot price. To do that, Vietnam needs to speed up the construction of iron ore processing plants. I think it takes at least four years to put such plants into operation.
In addition, Vietnam should outline a detailed planning scheme for the steel industry, highlighting input investment; exploitation of iron ores in the country; modern equipment and advanced technologies; and improved product competitiveness against products of the same kind in the world.
Importantly, steel enterprises need to focus on training workers and management teams, because along with modern technologies, good management will contribute significantly to the increase of capacity and quality. Vietnamese firms actually have not yet paid sufficient attention to this factor.
What do you predict for the growth of Vietnam’s steel industry in 2011?
If the GDP growth remains between 6.5 percent - 7 percent and huge construction works continue to be carried out as planned, steel consumption will increase. In 2011, steel consumption is forecast to increase 10 percent on-year, reaching 12 million tonnes. Domestic producers are applying modern technologies and striving to boost production, so the import of steel ingots and scraps in 2011 will decrease and the volume of exports will increase.
Currently, challenges from the larger economy are pressuring firms. However, I believe the government will soon offer solutions for the situation.
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