At an exchange talk with the Vietnam Business Forum, Mr Pham Chi Cuong, Chairman of Vietnam Steel Association (VSA), explained: “Steelmakers in Vietnam are also a type of business. Steelmakers have to gain profit to exist and are also ruled by the market principles. Thus, it is impossible to blame the recent stell price rise on steelmakers’ responsibilities. It is unadvisable to push Vietnamese steel producers to confront other businesses.”
Steel producers and traders usually base on the soaring import price of steel ingots when they hike the retail price. Meanwhile, dozens of steel ingot production projects have been carried out. So, how is the reliance on import sources?
Yes. In the first half of 2007, a dozen of big steel ingot production projects has been announced and began the construction. However, it is a long time for these projects to turn out steel ingots for the market. So for, the domestic source is only able to satisfy half of the production demand. The ratio of locally sourced steel billets is possibly higher when new factories begin operations.
Nonetheless, most factories are employing electrical kilns and using imported scrap steel to produce ingots. Thus, the production cost is still dependent upon the world price. In fact, the domestic steel price will fluctuate in tune with the world price movements in the next three or four years until Vietnam can produce sufficient steel ingots for its own demand. This is the reason why the steel price in Vietnam increases when the price of global steel billets is on the rise.
Is it normal when Vietnamese steelmakers increase the steel price following the rice in global ingot price?
Of course yes. The price of steel ingots has been on the rise for several months. In 2006, the average import price of ingots was US$389 per tonne but the figure has amounted to US$513 per tonne in the first half of 2007. Thus, the price difference was US$124 per tonne, or around VND2 million. Therefore, the price hike of steel products by VND2 million per tonne is sound. In addition, the other production costs were also pushed up by the price rise of electricity, petroleum and transport in the year.
The steel price rise is mainly attributed to the soaring price of ores in the world. Three world-largest ore producers, CVRD (Brazil), Rio Tento and BHP Billiton (Australia), which accounted for 71 per cent of the world supply, joined hands to increase the price by 19 per cent.
I also want to emphasise that Vietnamese steelmakers are also a type of businesses. Like construction companies, we also have to provisional measures and incur risks when the price of inputs soars. All is ruled by the market principles. Thus, it is unadvisable to push Vietnamese steel producers to confront other businesses. It is impossible to blame the recent steel price rise on steelmakers’ responsibilities because we cannot control the price of inputs.
Some says steelmakers have stockpiled to push up the price. In addition, many steelmakers import steel ingots when the price was low and the current price rise is irrational?
As I said if we did like this we would be against the market principle. In addition, most Vietnamese steelmakers have small production sizes and the stored reserves are small because they lack capital to buy more even when the ingot price is low. Indeed, the association only fears that big enterprises with strong financial sources and big steel ingot reserves will lower the price at this time to kill their rivals.
Besides, the monthly steel consumption in Vietnam is 250,000-300,000 tonnes. Hence, the inventory of 200,000 tonnes or so is absolutely normal. This is an essential provision for market fluctuations as an import cycle takes three months on average. In fact, this reserve is small because it should have been equal to the consumption in a month. This is also resulted from the shortage of capital of steelmakers.
Some says the Vietnam Steel Association fails to manage the price rise of enterprises and forecasts that the steel price can be higher?
If the steel ingot price keeps rising, the steel price will possibly increase. This is absolutely normal. Regarding the price management, the Vietnam Steel Association tracks the steel price in Hanoi and Ho Chi Minh City markets every month, which is undertaken by a control committee of the association. If we find any abnormalities, we will raise our voice or organise meetings to ensure the rationality in production and the rights and interests of consumers. The association has no rights to intervene in the selling price of steelmakers but only generally manage.
The selling rice is regulated by the market demand. More importantly, if the domestic price is high, Chinese steel will flood into Vietnam because China is experiencing redundancy. I am sure that Vietnamese steelmakers have calculated this situation. So, they will not seek short-term profits to confront new rivals from China.
Vietnamese
