Stabilising the Steel Market

The price of steel in the Vietnamese market has seen a remarkable increase since mid-July due to the high price of steel ingot at US$400-410 per tonne in the world market and the Ministry of Finance's decision, which took effect from July 1, 2004, to increase steel ingot import taxes from zero to 5 per cent for imports from Southeast Asian countries and 10 per cent for other countries, said the Vietnam Steel Association (VSA).

The price of steel bar on July 26 reached VND8,100/kg for Vinausteel steel, VND7,950 for Hoa Phat steel and VND7,850 for Vietnam-Italy (VIS) steel, an average rise of VND300 per kg compared to the prices on June 14, according to the latest price inspection by the VSA. Rolling steel of most manufacturers on the local market is also experiencing rising prices. Steel prices of some companies that are able to produce part of the steel ingots, such as the Thai Nguyen Iron and Steel Company (TISCO), the Southern Steel Company and Da Nang Steel Company, are lower than those of their rivals.

The announcement was made at the press conference held by the Vietnam Steel Corporation (VSC) and VSA in late July to inform people of the real situation in the local steel market in the face of rumours suggesting that local steel makers had formed a cartel to increase prices. Representatives of some local and foreign-invested steel manufacturers and relevant ministries attended the meeting.

Calculations by the VSA, however, pointed out that the rise has not been helped steel makers in Vietnam to overcome losses. With the price of steel ingots imported at Vietnamese ports and an import tax of 10 per cent, the average price for these companies is VND8.3 million (US$530) per tonne, remarked the VSA. At present, Vietnam's steel industry overly depends on imports of steel ingots that account for around 75-80 per cent of the total demand for input materials. 

Many steel companies such as Vietnam-Korea (VPS), Vietnam-Singapore, Hoa Phat and Vinausteel still have to use ingots imported in March 2004 at the price of US$450-480 per tonne. In June, the steel ingot price reduced to US$300-320 per tonne and consequently many purchasing contracts were signed. However, the contracts have been cancelled to date by foreign ingot providers due to rising global prices.

In light of these fluctuations, the VSA commented that the local steel prices in the next several months at VND8,000-8,3000/kg (VAT included) were acceptable.  

The Ministry of Industry estimated that it would be difficult to raise the prices because of the market's abundant supply while the Ministry of Finance affirmed that after raising taxes, steel prices would not soar because prices are decided by the market rules of supply and demand. The current steel supply of 1,185,000 tonnes can now meet the local market's demand of only 770,000 tonnes until October 30, 2004, about 220,000 tonnes per month, according to statistics from the VSC.

At present, Vietnam's construction steel manufacturers are facing fierce competition in the local market because their total designated capacity of 4.5 million tonnes per year has exceeded the current demand of only 3 million tonnes by 30 per cent. The country now has 20 large-scale steel plants and hundreds of small-scale ones in all economic sectors.

Before June 15, the day the Ministry of Finance resumed the tax rates on steel and steel ingot imports from zero per cent to 5-10 per cent, steel production and sales in the local market were facing a bleak situation. Seven steel companies temporarily stopped operation due to their large volumes of stockpiles, including VPS, Vietnam-Singapore, Hoa Phat, Vinausteel, VIS, SSA and Vietnam-Japan. According to the Ministry of Trade, only 50,000 tonnes of finished steel, mainly rolling steel, was imported during the months when there was no import tax and steel was sold at VND6,000-6,300/kg, as consumers were waiting for further price reductions of imported steel, thus freezing the market.

The Ministry of Finance's decision mainly aims to improve the confidence of investors in the expansion of the domestic steel industry. Tens of projects in the industry invested by foreigners, local people and VSC with a total production capacity of nearly 3 million tonnes of steel ingots are being quickly established and are expected to become operational from late 2004 to early 2006. They plan to bring the domestic-made steel ingot output from 700,000 tonnes in 2004 to 2 million tonnes in early 2006, accounting for 60-70 per cent of the demand.

In a letter sent to the Ministry of Industry on July 22, the VSA announced proposals to stabilise the situation. Firstly, the government should assign the Ministry of Industry to issue the draft regulation on managing the construction steel market. Secondly, since Vietnam still relies on 75-80 per cent of steel ingot imports, it should reduce or eradicate the import tax on the product, following the example of Thailand and Malaysia. Thirdly, the government should continue to impose import taxes on finished steel in line with the tariff cutting schemes of AFTA and the WTO to help local steel companies develop and gradually reduce their dependence on foreign materials. Finally, steel companies need a stable and synchronous tax policy.

• Hai Nam