Imbalance in steel industry

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At first glance, the figures do not make sense.

Vietnam has a surplus production of about three tons of steel every year, and yet, every year, it also imports four million tons of the alloy.

The mystery is easily solved, but the problem is not.

The surplus production is of construction steel and imports are of steel billets needed for industrial production.

"The rampant development of construction steel mills has created a surplus. Their combined capacity is some eight million tons per annum, far exceeding the demand of five million tons," Dinh Huy Tam, general secretary of the Vietnam Steel Association, told Thanh Nien Weekly.

Meanwhile, investment in turning out steel for industrial sectors like ship building and mechanical production is still limited, so Vietnam has to import most of the products. Each year, the country imports some 4 million tons of hot-rolled steel to serve these sectors.

According to a recent report by the Ministry of Industry and Trade, the country has 74 steel projects with a combined investment of nearly US$22.2 billion in 30 cities and provinces.

However, none of these are plants that can turn out steel for industrial sectors. "Construction of some projects has been delayed," Tam said.

Investors are not keen on producing steel billets because of the large investments and high technological requirements involved, said Le Manh Hoan, vice director of steel producer Dinh Vu.

The investment capital for a plant producing this kind of steel needs at least $500-600 million, much higher than the $100 million or so needed for a construction steel factory.

The investment exceeds a local firm's capacity, so they need to cooperate with other firms to get involved in the business, said an industry insider. However, such cooperation has not been looked into seriously.

Rising imports

Tam said it was only after 2000 that some firms began producing steel billets, but their output only meets 60 percent of the local demand.

The mills produce some three million tons of steel billets each year, much lower than their designed capacity of 4.5 million tons. Some small-scale mills lack the ability to run at maximum capacity, while others are learning still about the technology that they have just begun applying, Tam said.

Firms often import steel scrap to produce steel billet instead of getting the raw material from mines, said Tam. As of now, the Thai Nguyen Steel Mill is the sole producer of billet from mines, with an output of some 250,000 tons each year.

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