3:26:33 PM | 7/8/2005
Steel producers and traders in Vietnam committed speculation to maximize profits, creating a peak steel price fever from 2003 to August 2004, the State inspectorate has said.
The government’s inspection body found in recent investigations that by increasing prices all steel businesses posted high growth in profits in the first eight months of 2004 against the same period in 2003 although their sales output was much lower in the period.
Domestic steel producers used the pretext of high imported steel ingot prices to raise steel prices illogically, they said. Particularly Thai Nguyen Iron and Steel Co. (Tisco) increased its steel prices 38 times and the Southern Steel Co. raised their prices once per month from 2003 to August 2004. These two companies account for 40 per cent of construction steel market shares of the Vietnam Steel Association and can produce 50 per cent of their steel ingots.
Other private steel producers also made constant steel price adjustments: Viet Han 84 times and Hoa Phat 105 times.
"The steel price hikes in the 2003-2004 period derived from steel producers", said Deputy General Inspector Tran Quoc Truong. "They didn’t base [their prices] on production costs but [instead relied on] profits to increase steel prices unreasonably.”
Steel traders also colluded with producers to make big earnings. According to the investigations on seven companies which specialize in producing construction steel, in 2003, these companies only received profits of VND121.9 billion (US$7.76 million) but their profits soared to VND675.2 billion (US$43 million) in the first eight months of 2004.
Of the construction steel traders, the Viet Steel Ltd Co. made the biggest interest with a profit of VND324,486 per ton. Surprisingly, during the price fever, the company still sold 565,532 tons of steel, accounting for 63 per cent of total construction volume and 73 per cent of total profit of eight giant steel traders.
On average, each producer could get profits of VND37.6 billion (US$2.4 million) and each construction steel trader could earn VND14.5 billion (US$923,567) in the fever. Thus, the scarcity of steel created favorable conditions for producers and traders to get more profits, said Truong.
The speculation was attributed to loose State management and wrong accounting of steel producers that were entrusted to stabilize steel prices by the Government, according to Hoang Duc Ngan, vice head of an economic inspectorate department.
Another reason for price increases was mass investment in steel laminating factories while the country suffered from serious shortage of steel ingot producing plants. Vietnam’s steel sector now imports 80 per cent of its steel ingots so it is largely affected by steel ingot price fluctuations in the foreign markets.
To cope with this situation, the Ministry of Industry has asked the Vietnam Steel Corporation (VSC) to report its activities and temporarily suspend investment licenses for construction steel producing plants, said Deputy Industry Minister Bui Xuan Khu.
Accordingly, the corporation must seriously consider its responsibilities and give out specific punishments for each individual and affiliate in the 2003-2004 price fever.
Prime Minister Phan Van Khai has also requested VSC to immediately issue a price frame for all kinds of steel products and reorganize its sale system under the form that agents are entitled regulated discounts to avoid speculation and sloppy price increases of some private enterprises.
The Prime Minister has also instructed the Ministry of Finance to retrieve VND100 billion (US$6.37 million) from steel businesses due to wrong accounting into production costs and settle their illegal earnings from the price fever.
Vietnamese
