Steel industry seeks help to boost exports, limit imports

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Construction materials, equipment and machinery are deserted in the site of the Van Loi Steel Mill project in Vung Ang, Nghe Tinh Province. Broken ground in 2007, the project has been delayed since 2010 amid the economic slump that has scrippled the construction industry.

Vietnam's efforts to boost steel exports to mitigate the impacts of low domestic demand and high inventory are being undermined by unfavorable policies, industry insiders say.

These policies, as well as several industry shortcomings, make made-in-Vietnam steel and steel products less competitive than Chinese and South Korean ones, they add.

The country exported steel products worth US$1.36 billion between January and May, a year-on-year increase of 13 percent, according to the Ministry of Industry and Trade.

Local steel has been shipped to 20 markets, mainly to Southeast Asia, including Cambodia, Indonesia, Thailand, Malaysia and Laos.

Nguyen Tien Nghi, vice chairman of the Vietnam Steel Association, said export has become a solution for local steel producers looking to reduce their inventory and continue production amidst lower purchasing power in the domestic market.
Unsold stock was calculated at 310,000 tons as of late last month, up 1.97 percent over May.

However, it is not easy for steel makers, especially small ones, to boost exports, Nghi said.

Only big firms with advanced technology, experience and strong financial capacity can compete with low-priced products from China and South Korea.

Chinese and South Korean firms are able to access loans at much lower interest rates than Vietnamese firms, Nghi said.

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Despite recent reductions, annual lending interest rate paid by local steel producers still stands at 13 percent, he said.

"The high interest rate makes it hard for local steel producers to compete with foreign firms even in the domestic market, far less overseas markets."

Moreover, firms need to use advanced technology to reduce production costs, but just 30 percent of Vietnamese steel firms do this.

Most of the Vietnamese steel products exported are done by big local producers like Hoa Phat, Ton Hoa Sen, and Pomina, and some foreign invested ones like South Korea's Posco. Export accounts for 20-40 percent of their total revenue.

Export is lifebuoy not only for local steel firms but also foreign invested ones, given the stagnant domestic market, Nghi said.

Foreign invested firms mostly export cold rolled steel, while local ones ship construction steel, galvanized iron and color-coated iron, he said.

However, it has become difficult for even big firms to compete in foreign markets.

Do Duy Thai, vice chairman of Pomina, said his firm has had to cut selling prices and accept small margins to boost sales abroad.

"Exports cannot bring big profits. Earnings from the activity is just enough for firms to continue production amid stagnant sales in the domestic market," he said.

Another export obstacle facing steel makers in Vietnam are anti-dumping lawsuits.

Nghi said: "Anti-dumping lawsuits in the steel industry have shown a tendency to increase this year because of lower global demand and oversupply."

The steel association's general secretary, Dinh Huy Tam, said export was a "compulsory" step for firms in the current market situation, but anti-dumping duties were posing a threat.

Indonesia last December slapped 13.5-36.6 percent anti-dumping taxes on Vietnam's cold rolled steel coils.

Vietnam's galvanized iron and color coating iron are also caught up in lawsuits over anti-dumping duties in Malaysia and Thailand.

If Vietnamese steel mills lose these lawsuits, these countries could impose taxes of between five and 20 percent on products which are currently exempt from duties.

Tam advised steel producers to seek more markets and promote trading agreements.

 FIGHTING IMPORTS

In the domestic steel market, the struggle to boost sales continues, but there is no recovery in sight given the real estate situation.

Steel consumption in June fell by more than 9.3 percent from the previous month to 350,000 tons, forcing many companies to reduce their output or even stop production.

Nguyen Tien Nghi, vice chairman of the Vietnam Steel Association, said the most distressed firms are new ones that have yet to build themselves a brand name. Such firms cannot even sell their products at cut-rate prices, he said.

Many new businesses that built facilities last year have not dared to put them into operation, he said.

He said the root of the problem was the real estate market, the main steel consumer.

Property investors said earlier this month that 2012 was their worst year, with a 17.5 percent increase in supply, boosting unsold inventory value to more than US$3 billion.

Another major problem for local producers is the availability of cheap imports.

Anti-dumping measures

Two local steelmakers, Posco VST Co Ltd and Hoa Binh Inox Joint Stock Company, have filed a petition with the Vietnam Competition Authority (VCA) under the Ministry of Industry and Trade (MoIT), asking for anti-dumping measures against cold-rolled stainless steel imported from China, Taiwan, Malaysia and Indonesia.

They said the imported cold-rolled stainless steel is being dumped on the local market, seriously affecting the sales of local producers.

The petitioners have called for the imposition of anti-dumping tariffs of 20 percent on the product from China, 20.8 percent on those from Taiwan, and 39.9 percent and 16.7 percent on the products from Indonesia and Malaysia respectively.

The product now is the subject to a 10 percent duty.
Imports of the product rose to over 99,800 tons in 2011, up 34 percent over the two previous years, said Posco VST. Local firms could sell just 81,000 tons in 2012, compared to 92,000 tons in 2011.

It said locally produced products accounted for just 35 percent of the total steel sold in the domestic market in 2011, down from 41 percent in 2010. The share of imported steel in the domestic market rose from 59 percent in 2010 to 65 percent in 2011.

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