Steel and Cement Industries: Hard to Solve Demand and Supply Puzzle

While the domestic supply is increasing and the demand is shrinking, the cement and steel industries also have to face stiff competition from foreign products. The Department of Heavy Industries under the Ministry of Industry and Trade, and the Vietnam Steel Association, the Vietnam Cement Association, and the Vietnam Energy Association gathered in a meeting to find solutions to these two industries.

 

Remarking on the steel industry, Mr Bui Quang Chuyen, Deputy Director of the Department of Heavy Industries, said the quality of Vietnamese steel is not inferior to that in other countries in the region. Many steelmakers have invested in advanced production technologies. Currently, the output of steel ingot, construction steel, cold rolled steel, steel pipes and galvanised steel meets 100 percent of domestic demand. Steelmakers are eyeing exports to other countries. The production output of some products like square steel billets and construction steel exceeds 1.5 to 2 times of the domestic demand. The domestic construction steel capacity has reached over 10 million tonnes a year.

 

Objectively, the global economic downturn has directly affected the domestic economy and caused a sharp slump and freezing of Vietnamese real estate market in the past nearly two years. Unsold real estate and the operation of new production facilities have push up steel inventories. Although steel prices in Vietnam are higher than other countries, steelmakers are still suffering losses or making modest profit.

 

According to steelmakers, capital shortage for production, high-rate bank loans, and high input costs have pushed up product prices.

 

Mr Nguyen Van Thien, Chairman of the Vietnam Cement Association, said, Vietnam had to import about 4-5 million tonnes of cement each year before 2005 to meet the domestic demand. In 2011, the Prime Minister approved the cement industry development plan for the stage from 2011 to 2030. Accordingly, the cement industry will export 55 million tonnes each year. Total production output was estimated to reach 75 million tonnes a year by 2015. Without a boost to export, the inventory will certainly surge. Currently, fuel and energy inputs make up 45-50 percent of cement production costs, compared with 30-35 percent in other countries in the region. Plus with 33 percent of financial costs, cement production costs in Vietnam are very high. But, cement selling prices in the country are lower than in other markets in the region. Therefore, many cement producers in Vietnam are suffering heavy losses.

 

After the Ministry of Industry and Trade announced that electricity sold to steel and cement industries will be 2-16 percent higher than other sectors, representatives of these two industries voiced against this unfair treatment because these industries are struggling with a lot of difficulties.

 

Mr Nguyen Tien Nghi, Vice Chairman of the Vietnam Steel Association, said that the steel industry is in a difficult. If it is subjected to higher power price than other industries sector, it is unreasonable and contrary to the Government’s Resolution 02. The conclusion that the steel industry consumes much of electric energy on outdated technology is also incorrect. In fact, many companies have invested in advanced production technologies and equipment imported from G7 nations. The consumption of 450 kWh for a tonne of product meets advanced energy consumption standards of Southeast Asian countries.

 

Mr Tran Viet Ngai, Chairman of the Vietnam Energy Association, said: "The electricity industry does not cause pressures for cement and steel industries. The power price hike is in line with the roadmap decided by the Ministry of Industry and Trade and the Government. Given current loss and unsuccessful investment attraction, the electricity industry calls all sectors to share difficulties with the electricity sector. The price rise for loss compensation is thus reasonable.”