Steel Price Expected to Be on the Rise in 2007

According to the forecast of the Market Regulation Team under the Ministry of Trade, the higher prices of electricity and coal will lift up the price of steel by 0.6-1 per cent in 2007. Besides, international steel producers and importers are negotiating about the new price rates for 2007, which are estimated to be raised by USUS$20-30/tonne from the current level. Two reasons will pick up the price of domestic steel in 2007.

 

The prices of imported steel and steel ingots have never fluctuated as now. The Vietnamese steel industry is now able to meet 30 per cent of material inputs and the remaining 70 per cent is made up by imports, mainly from China. However, the price of Chinese steel billets was always on the rise, from USUS$380 a tonne in the first half of 2006 to USUS$450-455 in late 2006.

 

Regarding the steel production industry, China advocates the policy to focus the increase of its exports to Vietnam to occupy the market share, not exporting materials. This is proven by its taxation policy. China imposes zero per cent export tax on finished steel and presents export bonus of 6-8 per cent (for specific periods of time). Meanwhile, it levies 10 per cent export tax on steel ingots. The rate is proposed to be lifted up to 15 per cent in 2007.

 

With this policy, Chinese companies have massively sent their finished steel products to Vietnam. They sold at VND7-7.1 million a tonne, lower than the price of Vietnamese steel by about VND300,000 a tonne. This is also USUS$40 a tonne lower than steel ingot price. This forces Vietnamese steelmakers to follow a stiff price race.

 

The steel industry is facing up with more difficulties when the prices of oil and electricity are on the rise. The cost for the production of a tonne of steel is now added VND20,000-25,000. Therefore, several steel mills had to shut production in 2006 due to environmental issues such as Tan Thuan Steel Plant (Nha Be District, Ho Chi Minh City), Danang Steel Factory, etc.

 

In general, the steel production industry will undergo a tenser competition in 2007. The price of construction steel has been up slightly in the first quarter of 2007 because the input costs for coal, electricity and steel billets are higher. The CIF price of steel ingots is estimated at USUS$400-420 a tonne in 2007.

 

At present, companies in Vietnam import some two million tonnes of ingots a year. According to an expertise calculation, if Vietnam had sufficient inputs, the price of ingots in the country will be USUS$30-40 lower. However, the production of steel billets is dependent on two main sources: old ship dismantling and scraps.

 

Meanwhile, the Government only allowed the dismantling of ships imported before July 1, 2006 and disallowed the import of old ships for scrap steel after that. To produce some one million tonnes steel billets a year, steelmakers in the country must import 700,000-800,000 tonnes of scrap steel and collect from local iron ores. At the same time, the import of scrap steel is encountering strict regulations on environmental standards stipulated by the Environment Law. As a result, the steel industry is facing a serious material shortage.

 

More importantly, China is advocating a policy to slow down the hot development of its steel firms and encourage the export of steel products. Of course, with this policy, Chinese steel will compete with Vietnamese ones in both quantity and price.

 

However, several steelmakers with stable supply of steel billets can still compete with foreign rivals. For example, Phu My Steel Plant of Viet Steel Company, which turns out 500,000 tonnes of rolled steels and 450,000 tonnes of laminated steels a year, are fearless of steel billet prices.

 

The Vietnamese demand for steel was nearly eight million tonnes in 2006 but domestic sources can provide 3.4 million tonnes of construction steel bars and 200,000 tonnes of steel sheets. Steelmakers must import 1.8 million tonnes of steel ingots and 3.4 million tonnes of other steel products. Total import value was nearly USUS$3 billion.