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Steel industry growth may cost Vietnam more than it’s worth
Multi-billion dollar steel projects are pushing up power consumption and fouling the environment without obviously adding economic value, according to analysis in Thoi Bao Kinh Te Saigon.
Ten years ago, the manufacturing sector consumed 40 percent of Vietnam’s total electricity output. That’s rapidly changing. Electricity of Vietnam (EVN) reports that the manufacturing sector demand rose to 51.65 percent of supply in the first six months of 2010.
Some people may call this good news, data that shows that the construction and industry sectors in the national economy have developed strongly. In fact, however, the construction and industry sectors account for only 42.6 percent of the added value of GDP, and raise big questions about the efficiency of their energy use.
Over the last decade, the growth rate of electricity consumption in Vietnam has always outpaced the growth rate of the value of industrial production.
Dr Nguyen Thanh Son, Director of the Song Hong Power Company, points out that in recent years, Vietnam has been developing industries that consume a lot of energy but bring low added value. Son says the steel industry is a typical example.
According to Vietnam Business News, by the end of 2009, 65 steel projects had been licensed, with a projected output of more than 35 million tons each year. However, it is estimated that the domestic demand for steel of all kinds will only reach 15 million tonnes by 2015 and 20 million tonnes in 2020. The Ministry of Industry and Trade has instructed provinces to freeze new licenses while it studies the situation.
Steel Association Chairman Pham Chi Cuong calculates that Vietnam’s mills must consume 700 kWh of electricity to make one ton of structural steel from iron ore or scrap steel. To manufacture 40 million tons of steel, Vietnamese mills thus will require nearly 30 billion kWh of electricity, or 40 percent of Vietnam’s current electricity production.
Tran Viet Ngai, Chairman of the Energy Association, said that will be very difficult to meet the demand for power if consumption increases too rapidly. “Vietnam will have to import power in the near future. We should avoid developing industries which consume a lot power but confer only modest socio-economic benefits,” Ngai said
The true costs of steel development
Forty million tons of steel annually is more than Vietnam’s foreseeable consumption, so in the future, steel mills will surely have to export products. This is the main goal of big foreign investors that plan to set up factories in Vietnam. Thus the question’s arisen whether Vietnam should allow investors to develop an export-oriented steel industry, or should limit its goal to meeting domestic requirements.
Cuong, the industry association chair, says that there’s little profit in making steel steel ingots – in fact the ingots account for 90 percent of the production cost of steel products. There’s more profit in making steel from iron ore, but this requires considerably more power.
In general, Vietnam has to import nearly all the inputs for steel production, from iron ore or scrap iron to machines and equipment. To supply the big steel projects in the planning stage, Vietnam will also have to import electricity or coal to produce electricity.
Further, the development of the steel industry does not much stimulate development of other industries. Not only do steel mills consume a huge volume of electricity, but they also generate a lot of environment pollution.
Dr. Son is convinced that Vietnam should not develop energy-intensive industries like steel or cement into export-oriented industries. He reasons that huge steel projects may increase Vietnam’s export earnings but, because it will also drive up the volume of imports, the net gain from these projects will be small, perhaps even negative.
“Our oil and coal will not last more than a few more decades,” Son says. “We should focus on developing sectors which do not consume much energy but can add a lot of value.”
vietnamnet, TBKTSG
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