Vietnam may restrict steel imports to curb reliance on China

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Vietnam may restrict imports of steel products that can be manufactured domestically to curb reliance on China, Japan and Russia, according to a recommendation from the Vietnam Steel Association.

Vietnam is able to make products used in construction, such as wire rods, pipes and metallic-coated steel, and is developing factories to manufacture other goods, said Pham Chi Cuong, Hanoi-based chairman of the association, which represents 90 percent of the country's steelmakers.

Limiting overseas purchases of some kinds of steel, Vietnam's third biggest import, will reduce its exposure to rising costs in countries such as China, where benchmark hot- rolled steel prices last week reached an 18-month high. Restricting imports may also help Vietnam to narrow the trade deficit, and limit the impact of a weakening dong.

"The government should have measures to limit imports of products such as wire rods, pipes and metallic-coated steel that local factories can produce here already," Cuong said in an interview Wednesday. "Restricting imports will help the government reduce the trade shortfall, curb inflation and boost local production as well as economic growth," he said.

The country's demand for steel products will increase as much as 15 percent this year because stalled construction projects are resuming as economic expansion quickens, the association said.

Vietnam's imports of the metal rose 22 percent in 2009 to 9.63 million tons, according to the statistics office. The dong weakened 5.4 percent last year as the government devalued its currency twice, making imported goods more expensive.

Real-estate recovery

"If we can supply these products domestically, we'll be able to save at least $700 million from paying foreign sellers this year," Cuong said.

Prices for steel used in construction projects have increased about 40 percent from the beginning of the year, said Thai Thi My Hanh, vice chairman of the Saigon Construction and Materials Association, which represents 70 companies, including Saigon Construction Corp.

"Should steel prices keep increasing, construction projects may shrink and that will affect the recovery of the real-estate sector, which has been frozen for the last two years," said Le Viet Hai, chief executive officer and chairman of Ho Chi Minh City-based Hoa Binh Construction & Real Estate Corp., which built campuses for Australia's RMIT University in Vietnam.

Any further increase in prices will also make it more difficult for the government to curb inflation and meet its economic growth target, the association's Hang said.

Widening deficit

Construction grew 7.1 percent in the first quarter, and made up for 4.5 percent of Vietnam's economy. Gross domestic product expanded 5.8 percent last quarter from a year earlier. The government is aiming for 6.5 percent growth this year.

The trade deficit widened to $1.35 billion in March from $1.33 billion the previous month as imports rose. The year-to- year shortfall was $3.5 billion, compared with a surplus a year earlier. Inflation accelerated to a one-year high in March, with consumer prices rising 9.46 percent from a year earlier.

Vietnam imported steel worth $5.33 billion last year, its third-largest product by value after machinery equipment and petroleum, according to the General Statistics Office in Hanoi.

Of the products Vietnam imported in the first quarter, about 7 percent can be made locally, said Cuong of the association. The Hanoi-based industry group has about 100 member companies.

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