Japan's JFE Steel, a unit of JFE Holdings Inc, said on Tuesday it has decided to pull out of a planned steel plant project in Vietnam due to a prolonged oversupply situation of the alloy in Asia.
"We've decided to end the feasibility for the project as we came to a conclusion that the project would not make economic sense as the Asian steel market continues to face oversupply and steel demand in Vietnam is not growing fast enough," a spokesman of JFE Steel said.
The Japanese company cancelled the memorandum of understanding with the project's partner, Taiwan steelmaker E United group, at the end of August and notified its decision to the local government of Vietnam last week, the spokesman said.
JFE, Japan's No.2 steelmaker, has said it was considering taking a majority stake in the project to construct a plant with steel sheet production capacity of 3.5 million tons that could go onstream in 2016.
Industry experts have estimated that the 3.5-million-ton plant would cost about 350 billion yen ($3.27 billion) to build.
But the final decision had been delayed due to the prolonged supply overhang that grips Asia.
China, the world's top steel producer and consumer, churned out 68.91 million tons of crude steel in August, up 1 percent from a year earlier, with the daily production rate of 2.20 million tons largely unchanged from July.
Despite a slowing economy, particularly from the property sector, China's daily crude steel output has exceeded 2013's record of 2.188 million tons every month, as mills have been reluctant to reduce output amid fears that credit could be cut off and that market share could be seized by rivals.
This has exacerbated a supply glut and caused spot steel product prices to tumble, while steel rebar futures on the Shanghai Futures Exchange recently hit their lowest ever.
"We will continue to study other opportunities as we still want to build an overseas steel plant somewhere in Asia," the JFE Steel spokesman said.