Many Steel Makers Nearing Dissolution

According to Vice Chairman of the Vietnam Steel Association (VSA) Nguyen Tien Nghi, in 2007, only a year after the government approved the "Plan for Vietnam's steel industry development in the period of 2007 to 2015", the VSA submitted several legal documents to the Government and the Ministry of Industry and Trade addressing the unfocused investment situation. Being so eager to attract investment, instead of asking the opinion of the Prime Minister and Minister of Industry and Trade, local investors and local authorities tend to split the investment projects into half to get easier access to investment . This is the cause of the “steel fever" in many localities, which made the steel industry fall into great difficulty.

 

Across the country, there are currently about 400 enterprises operating in the field of steel production, of which about 120 enterprises specialize in producing construction steel. There are nearly 100 manufacturing enterprises not located in the planning area, which causes oversupply in the steel market. In many localities, there exist many gaps in the license management, which poses difficulties in management. Particularly, development not in accordance with the plan approved by the Prime Minister, collecting information conditions are limited which narrows the choice of partners, environment protecting solutions are not well planned and technological knowledge is limited. This causes imbalance of energy, environment, transportation, etc. This is the opinion of Mr Pham Chi Cuong, Chairman of the Vietnam Steel Association.

 

Steel industry is now experiencing uneven development which makes the limitations of the steel industry even more highlighted. While construction rolled steel, cold rolled steel has high output capacity than the demand, hot rolled steel, steel fabrication, and stainless steel still has to be imported.

 

Besides, most of the enterprises are operating on outdated technology discarded by developed countries. This leads to high cost and waste in production activities, products with low quality, and low ability to compete with foreign counterpart products.

 

Mr Nghi said that every locality wants to attract investment, but has no awareness of the possible difficulties and easily accept the projects, which breaks the balance of quantity and kind of steel products. Many localities carelessly select partners with no financial resources and technology, thus when there are economic fluctuations, those projects always last longer, even have to be stopped. There have been a number of projects which face license reclamation because the partners do not have the ability to carry out the projects. Some investors can have projects carried out but with the use of outdated technology, making Vietnam the gathering place of energy-consuming and polluting factories many countries wish to eliminate.

 

Output constraints are becoming challenge for steel producers who are operating mainly by bank loans with low equity. Failure to address the output of steel products will increase the risk of bankruptcy of enterprises. For example, Van Loi Steel Joint Stock Company, due to output deadlock, was shut down a year ago with two smelters and a factory producing steel billet, while its debt to the bank reached over VND 1,000 billion. Many projects in Nghe An are suspended indefinitely when they have yet to come into production. In all of the above cases, when enterprises declared bankrupt, the bank itself was also severely affected since the loans can not be recovered.

 

A well-known steel producer, Dinh Vu steel factory, has consecutive losses for years. This business has transferred 70 percent of its stake to Vietnam-Australia Steel Corporation. Dinh Vu Steel company is operating perfunctorily and handling for Vietnam-Australia Steel Corporation. Besides, numerous enterprises have to close or restructure business as Cuu Long Vinashin Steel Corporation or Song Hong Steel Joint Stock Company.

 

Thai Nguyen Iron and Steel Corporation also owes the bank more than VND6,000 billion. This loan is getting bigger as the company is planning to expand investment into Thai Nguyen Iron and Steel Project phase two. While the product output is limited, large inventory remains, the number of loss-making steel enterprises will continue to rise, not to mention the funds to pay the loan according to the terms.

 

If plan on macro development with the participation of the government, relevant ministries, associations and businesses of steel is not mapped out, the ability to "sink" in the loss of the steel industry in the country is inevitable, which will be the basis for the decline or even disappearance of the steel industry.