Steel Industry Facing Supply and Demand Imbalance

The main reason is that the demand is very low and it is difficult for the steel industry to find measures to stimulate it in the near future. Statistics show the continuous imbalance between the supply and the demand. The Ministry of Industry's statistics show that in five months of 2006, the stock volume was over 300,000 tonnes while the industry's output was around 940,000 tonnes, equal to 95.8 per cent of the same period last year. Vietnam's rolling capacity is over six million tonnes per annum but the demand reaches only 3.8 million tonnes.

Owners of many steel shops said that prices of steel had increased due to a rise in prices of materials. With increased prices, it has become more difficult for the steel industry to sell its products. The Trade Information Centre, under the Ministry of Trade, said that since early May, steel prices had witnessed a continuous rise. Prices of 6LD and 8VN steel in Hanoi, Ho Chi Minh City, Haiphong and Can Tho are put at VND 8,400-8,500 per kilogram while factory's prices are just VND 7,500-7,800 per kilogram.

 

This means that Vietnam will have to import between 2.5 million and 2.6 million tonnes of ingots in 2006. With such a huge import volume, which depends much on prices of ingots in the international market, it is difficult for Vietnam to set prices for the local market. The Ministry of Industry said that due to a low volume of ingots offered to Southeast Asia, prices of steel had increased sharply. The ministry has asked enterprises to tightly manage its distribution to avoid any demons.

 

So far, Vietnamese steel manufacturing enterprises, especially State-owned enterprises, have enjoyed protection from the State. As a result, they have not experienced any real challenge from outside. However, as steel is a popular product, the State cannot use any technical barrier to protect local production. Also, Vietnamese steel rolling factories have a small scale with only three enterprises, including the Thai Nguyen Iron and Steel Company, the Southern Steel Company and the Pomina Steel Company, having a capacity of over 500,000 tonnes per year. Other enterprises have a capacity of between 200,000 and 250,000 tonnes per annum.

 

At present, Vietnamese steel manufacturers are suffering pressure from profit making and the debt payment. Experts say they fear that situation may cause difficulties for local manufacturers, especially with a flood of foreign-made steel in the local market after the ASEAN-China Frame Agreement on Comprehensive Economic Co-operation takes effect from July 1, 2006.

 

Main rivals of the Vietnamese steel industry include ASEAN countries, such as Malaysia and Thailand. The consumption growth rate of the countries is put at between 10 and 22 per cent while the figure is just eight per cent for Vietnam. Apart from fiercer competition from ASEAN rivals, what worries Vietnamese manufacturers most is competition with Chinese opponents. According to a forecast of the International Iron and Steel Institute, China's output in 2005 is 318 million tonnes, but in fact the country produced 350 million tonnes last year.