Steel Industry Looking to World Market

Inventories have not decreased as expected and steel makers and traders are struggling to survive in the face of uncertain economic situations in the country and in the world. The Vietnam Business Forum interviewed Mr Pham Chi Cuong to learn about the outlook for the steel industry. Luong Tuan reports.

Currently, steel investors are not limited to Vietnam Steel Corporation and foreign-led joint ventures, but they are also active in other economic sectors with expanding production scales, even worth billions of US dollars. Vung Ang steel complex in Ha Tinh province with a designed capacity of 22 million tonnes a year is expected to be completed in 2015.

 

The steel industry has made significant growth in the past years. Currently, domestic steel-makers can fully meet the domestic demand for rolled steel and steel bars of pi 6 and pi 8, welded steel, tinted steel, galvanised steel, and small shaped steel.

 

Presently, domestic manufacturers are still importing inputs for ingot production and fat coal for coking. In 2012, the country produced 5.5 million tonnes of steel ingot (up 3.1 per cent over to 2011) and more than 9 million tonnes of steel (down 0.8 per cent).

 

Major products of Vietnamese steel-makers are construction steel products such as steel coil, mid-size shaped steel, steel rods, welded steel pipes, tinted steel, galvanised steel, and cold rolled steel. They are not be able to produce other types of steel such as alloy steel, hot rolled steel, and steel for mechanical manufacturing, and these items are offset by imports.

 

In 2012, they were estimated to import 7 million tonnes of steel and materials worth about US$5 billion. This is a huge amount in comparison with the demand in the year.

In reality, steel inventory now stands at 300,000 - 400,000 tonnes, according to statistics. This is enough for one month's consumption in the domestic market. So, this is not a matter of concern at the turn of 2013.

 

While global economies in general and the Vietnamese economy in particular are showing signs of uncertain recovery, interest rates remaining very high while working capital for the steel industry is huge, bloated inventories will put financial burdens on companies. Weak sales caused many steel makers to scale down their production. By the end of 2012, no steel makers had been reported to file for bankruptcy and only 5 - 6 VSA-member companies have suspended production.

 

This is a very positive aspect of the domestic steel industry because it proves that Vietnamese steel products meet international quality standards and prices are competitive with rival products. Although Vietnamese enterprises started steel exports not long ago, the outbound amount keeps increasing over the years. In 2012, Vietnam exported nearly 2 million tonnes of steel.

 

In 2013, steel export remains a business strategy Vietnamese steel makers will take into account but it will be more difficult because world economic decline will toughen competition in importing countries and safeguard policies will be also adopted to protect their domestic production. Last year, Vietnam faced antidumping lawsuits against cold rolled steel exported to Thailand and Indonesia, and welded steel pipe to the United States. Some other countries have warned of suing Vietnamese galvanised steel and tinted steel.

 

In addition to traditional markets, Vietnamese steel makers are striving to expand into new markets and reduce imports in the coming time.

 

According to the World Steel Association, in 2013, global steel consumption is forecast at 1.455 billion tonnes, up 3.2 per cent from 2012. Major markets such as the United States, Japan, and the European Union still struggle with economic difficulties. This will affect the export capacity of domestic Vietnamese enterprises.

 

In the home market, the Government has sought many measures to restore production, especially warming up the real estate market. All these factors will be the prerequisite for long-term stable development, but this also needs time to test. In that context, the steel industry still has plans to deal with immediate difficulties and challenges like adjusting the supply of products such as steel pipes, galvanised metal, construction steel, and cold rolled steel. The oversupply of these items will cause inventory to grow which will become a heavy burden for manufacturers if it is not solved quickly.

 

As more binding mechanisms for Vietnam's WTO entry take effect, zero tax is generating huge pressures on domestic steel producers in competition with imported products, especially Chinese.

 

Regarding exports, Vietnam's steel product exports will have more difficulty penetrating foreign markets when more protectionist policies are applied and more countries may lodge antidumping lawsuits against Vietnamese steel products.