Imbalance in Steel Supply & Demand

In recent times, steel prices in the market have been higher than those of steel imported from foreign countries, reducing the competition of Vietnamese steel. Moreover, some domestic and foreign-invested enterprises have started construction of their large-sized steel production steel worth billions of U.S. dollars. These are forecast to cause an imbalance between the supply and the demand of steel in Vietnam in the coming time.

In the domestic market, the price of steel imported from Malaysia, Thailand, Indonesia and China are between VND7.9 million per tonne and VND8.2 million per tonne, VND3 million per ton lower than those prices of steel produced in Vietnam. Besides, China is boosting its steel in stock by raising the valued-added tax repayment to 12 % from an earlier 5 % in order to slash their steel prices, causing competitive difficulties for domestic steel.

 

It is difficult for Vietnamese steel enterprises to sell their product if they do not slash their prices as the global prices are decreasing and a large amount of steel is imported from other countries, said Nguyen Tien Nghi, Vice Chairman of the Vietnam Steel Association.

 

According to the Vietnam Steel Association, enterprises in Vietnam produced 320,000 tons of steel in September, down 12 % from a month earlier, and sold around 100,000 tons of steel in the month. Struggles for the domestic market are forecast to be drastic in the future as local enterprises can produce 7.1 million tonnes of steel in the remaining months of this year, two times higher than that currently, while the domestic demand for steel will be only about 4.6 million tons of steel of all kinds.

 

Although domestic steel prices have been higher than imported prices, local enterprises have not yet balanced their prices. Local steel ingot delivers only between 55 % and 60 % of the demand and that is blamed for the situation. Moreover, the domestic steel sector must balance their receipts and expenses as prices for input materials will rise by 30 % beginning this month. In the context that the supply of steel ingot for producing construction steel is dependent to a large degree on the materials imported from other countries, local steel traders still face a lot of risks in the future.

 

Regarding the market of exported steel, some Vietnamese enterprises exported a small amount of building steel, steel pipes and iron sheets to the countries of Cambodia, Laos and Myanmar. The Vietnamese government’s target in September 2007 was that steel produced in the country must meet both local demand and exports. However, in order to achieve the target, the nation has to have advanced equipment and technologies in addition to large scale production plants so as to be able to manufacture a good product with cheap prices.

Vietnam is forecast to face a redundancy of 30 % of steel this year and the coming years. By 2011, steel plants in Vietnam are capable of producing 11 million tonnes, up 56 % against end of 2009, while the average demand will rise only 15 %. By end-August, Vietnam exported only 2.4 % of the country’s total steel volume.

A series of investors are pouring huge amounts of money into steel projects, said Nguyen Tien Nghi. Positively, Vietnam will have a large amount of steel for developing the industry. However, it will cause an imbalance between the steel sector and other sectors if steel projects do not get suitable development plans, Nghi said, adding that the situation may lead to the unhealthy competition among traders.

 

Nghi stressed that investors need to obey the development plans approved by the government in September 2007.

 

A lot of steel projects were built without taking notice of the size of the plants. For example, rolled steel plants must have capacity of around 500,000 tons a year; while steel refinery mills have a capacity of at least seven tons per furnace, Nghi attributed. However, many investors still invest in a great deal in small steel plants. Most of them are ineffective and do not meet standards for power consumption and environment protection.

 

Nghi suggested giving priority for investors who want to invest in cool-rolled steel and hot-rolled steel projects.