Steel Billet Producers Need More Support

According to the Vietnam Steel Association (VSA), the country is now home to 21 steel billet producers with an annual capacity of 6 million tonnes. In 2010 alone, ingot output reached 4.314 million tonnes. The production is expected to expand in the coming time when projects now underway begin operation.

 

Within a few years, from relying 70-80 percent of steel ingots on foreign supplies, the Vietnamese steel industry is now capable of meeting nearly 70 percent of ingot demand. Companies in the country started producing steel billets in 2005, with pioneers being the Vietnam Steel Corporation (VNSteel), the Vietnam Italy Steel Joint Stock Company (VISCO) and the Thep Viet Steel Company. These big steelmakers imported advanced technologies from developed nations; thus, the quality of steel ingots is not inferior to foreign ones. Their mills have relatively large capacity, usually from of 500,000 tonnes a year.

 

Hence, the domestic supply of steel ingots did not seriously fall short in 2010. According to customs statistics, in the first four months of 2011, Vietnam imported 2,631,811 tonnes of finished and material steel, including 319,000 tonnes of steel billets.

 

The VSA said that although domestic steel billet production is already enough to meet demand for steel production, many steel producers, especially joint ventures, still choose to import it for production and import volume thus rose by about 30 percent.

 

This is not only because prices of domestic ingots are higher than those of imported products, but also because the quality of locally made products is not as high as imported ones. At present, only some 50 percent of domestic steel billet is produced by advanced technologies that meet the requirements of steelmakers.

 

Additionally, the quality of steel ingots is not absolutely reliable because workers have not fully mastered new technologies when mills start operation. This also makes steelmakers trust less and use less locally produced billets.

 

The VSA said that to stimulate consumption of domestic steel billets, stabilise the market supply and demand, and limit steel imports to save foreign currencies, time and transportation costs, the Government should have solutions supporting domestic companies to invest in new machinery and advanced technology to turn out high-quality products, increasing confidence among both consumers and manufacturers.

 

Besides, when steel ingot prices fluctuate, management agencies can use tax tools to regulate prices, because import tariffs on steel ingots are now still 7 percent. Moreover, steel billet producers enjoy benefits from foreign exchange rates, transportation and warehousing costs over imported ones.

 

Steel producers in the country can buy in the short term, not on monthly or quarterly basis, and do not have to wait months for delivery. As a result, companies will benefit from faster capital turnover and suffer less when prices of steel billets are different between quarters.

 

But, the biggest problem is now all steel billet production projects are dependent on scrap steel, while the domestic supply of scrap steel is being exhausted. According to the VSA, a new steel billet project will require 1.5 - 2 million tonnes of scrap steel a year and this type of steel is now totally imported. Meanwhile, prices of scrap steel on the world market move behind steel billet prices.

 

Indeed, when prices of steel billets are fluctuating, the source of imported scrap steel is also unstable. Another drawback for importing scrap steel is that Vietnam lacks deepwater ports to accommodate large ships, while importers will have more advantages when they purchase larger volume of scrap steel. Hence, although the domestic supply of steel billets is easy, the situation will not be improved immediately.