Foreign Steel Corners Vietnamese Market

Contrary to predictions of many experts, the building material market will be stabilised toward the end of this year and construction material companies will enjoy good business. However, more than one million tonnes of foreign steel have been massively imported into Vietnam. This has forced domestic steelmakers to lower their selling prices since late October and November. Steel producers in Vietnam are reeled by the attack of foreign steel. Before such a situation, the Vietnam Steel Association (VSA) had to seek solutions from the Ministry of Industry and Trade, the Ministry of Finance and the Government Office to deal with foreign low-quality cold rolled steel flocking into Vietnam with rising volume.

 

Although Vietnam has also anticipated difficulties in building material market and has built an operating mechanism to deal with risks in the future, many problems seem to go out of the control of management agencies, especially in the steel industry. Previously, Vietnam saw China as a major competitor in the domestic steel market but a large volume of steel products from ASEAN countries are flooding Vietnam. In 2008, Chinese steel accounted for 64.5 percent of total imported steel in Vietnam and 11.7 percent from ASEAN countries but the figure climbed to 80 per cent in the first nine months of 2009. Each month, the country imported at least 30,000 tonnes.

 

According to the statistics from the Vietnam Steel Association, imported steel quadrupled the steel volume sold by domestic steelmakers. This not only causes an excessive supply in Vietnam but also intensifies direct pressure on domestic steel producers.

 

Mr Pham Chi Cuong, Chairman of the Vietnam Steel Association, said imported cold rolled steel is accounting for three-fourths of the domestic market share. At present, prices of Chinese cold rolled steel products at Vietnamese ports are at US$570-590 per tonne, or VND10.5-10.9 million per tonne. The offered price is lower than the rate of domestic steelmakers by VND800,000 to VND1.6 million per tonne. This has sent domestic businesses into serious difficulty. For domestic producers, it is their utmost endeavour to keep the price unchanged amid growing prices of inputs like petroleum and rising foreign exchange rates. Price cut seems to be an unlikely option.

 

Before such problem, domestic steel companies have repeatedly reduced their selling prices to shorten the gap with foreign rates although it is not easy to compete with foreign steel.

 

Mr Cuong said: “At present, the zero tax rate plus declining global steel prices and excessive supply in China will surely make steel prices lower. In addition, most imported steel is secondary nonstandard categories with lower quality while the domestic steel is the up-to-standard product. However, Vietnamese steel can hardly compete with foreign rivals because of price differences.”

 

The retreat of domestic steel in the home market to imported products is partly due to higher rates of input prices and production costs than other countries. On the other hand, inappropriate financial measures have affected this market. Mr Dau Van Hung, General Director of Vietnam Steel Corporation, said the growing pressure of foreign steel on steel products is partially caused by banks.

 

According to Mr Hung, banks prioritise finished steel products while rejecting steel scraps and materials for ingot production. The priority of banks for imported finished steel, but without clear regulations on specific categories, will affect the domestic steel production. Steel Vietnam is currently unable to produce like steel sheet, hot rolled sheet, steel alloys, etc.

 

The massive flooding of imported steel into Vietnam in recent years has sent many steel companies to the brink of closure. According to customs offices, as of November 15, Vietnam imported 620,000 tonnes of cold rolled steel worth US$$300 million. In the past 11 months, six domestic companies are now manufacturing this product, including Vietnam Steel Corporation, Posco Vietnam, Hoa Sen Group, SUNCO Taiwan, Viet Thanh and Thong Nhat but they had sold only 200,000 tonnes.

Meanwhile, the cold rolled steel production capacity is in excess of the domestic demand. So far, domestic producers can turn out 2.4 million tonnes, doubling the average demand in the country. Moreover, Vietnam also has many cold rolled steel mills under construction, such as China Steel-Sumitomo of Japan and Formosa of Taiwan.

 

To deal with this situation, the Vietnam Steel Association recommended the Vietnam Competition Administration Department under the Ministry of Industry and Trade to consider and guide domestic steel companies to collect data and launch trade self-protection measures.

 

In addition, the Ministry of Science and Technology should also issue the national standard on cold rolled steel soon to create technical barriers to prevent the entry of poor quality steel in Vietnam. At the same time, customs authorities should examine importers and issue strict regulations on the procedures for customs declaration in order to prevent massive entry of foreign products and trade frauds. The Ministry of Finance should impose strict control on concessional credit grant to importers of cold rolled steel which is already in excessive supply in the country.

 

The wide supply-demand gap will lead to a series of the closure of many domestic steelmakers if there is no proper solution, said Cuong.