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Finding no outlet, ingot steel producers weeping
The four directors of four ingot steel companies have sent a document to the Vietnam Steel Association (VSA) asking for help as they are seriously lacking working capital and facing bankruptcy.
The tears of ingot steel producers
As the government has been trying to control investment projects by cutting a lot of projects, and control banks’ credit growth by setting the 30% credit growth limit, a lot of steel laminating mills complain that they cannot sell steel. As a result, the mills have refused to purchase ingot steel from domestic producers. Meanwhile, the Ministry of Finance threw more oil onto the fire by deciding to raise the export tax on ingot steel from 10% to 20% on August 10, 2008 (prior to that, the tax rate was raised from 2% to 10% on June 28, 2008).
In the document sent to the VSA, Dinh Vu Steel Joint Stock Company, which can churn out 200,000 tonnes of ingot steel a year, wrote that the company can barely maintain production and ensure jobs for 850 labourers. Moreover, bank interest rates are overly high and unaffordable for the company. Meanwhile, the products the company makes remain unsalable as domestic steel mills do not have a demand for ingot steel. The company cannot export the ingot steel because of the high export tax, which makes the exports unprofitable. As a result, the company now has big stocks while seriously lacking working capital.
With no outlet for the products, the inventory volume of the company has reached 15,000 tonnes a month, worth nearly VND300bil. While the products are left unsold, the company still has to pay VND12bil in interest on bank loans. In addition, the company also has to pay VND10bil for electricity, VND6bil for labourers’ pay.
“If no solution can be found for ingot steel producers, they will have to shut down workshops, and bankruptcy is now in sight,” the document said.
The Hung Yen Mechanicals Joint Stock Company also complained that it has 10,000 tonnes of ingot steel in stock every month, worth VND200bil.
The situation seems to be more serious at Van Loi Company Ltd. In Hai Phong city, the company has a 600,000 tonne/year ingot steel factory, which makes ingot steel from scrap steel. It is planning to put a 500,000 tonnes/year cast iron factory into operation in late September or early October.
High capacity factories mean high number of labourers who are facing the risk of losing jobs (to date, Van Loi system has over 2,000 workers, including 1,460 in Hai Phong). Currently, Van Loi’s main source of income depends on the ingot steel factory in Hai Phong city. Every month, Van Loi has to pay VND33.5bil a month to maintain the factory in Hai Phong, while the inventory volume reaches VND600-700bil.
What to do to clear stocks?
When deciding to raise the export ingot steel tax rate to 20%, the Ministry of Finance said that this aims to limit ingot steel exports, as massive exports may lead to a ingot steel shortage in the domestic market. However, the director of Thep Viet Joint Stock Company said that the worry about the ingot steel shortage proves to be groundless, and that the ministry did not anticipate the delay of many construction projects.
Ingot steel producers fear that they will incur a double loss because the world’s ingot steel price is decreasing and because of high interest rates (the price has dropped by 25% over the last month).
Thep Viet, Dinh Vu, Hung Yen and Van Loi all have asked the state to rescue ingot steel producers. They think that the state could buy the ingot steel for national reserve, or consider cutting the ingot steel export tax. Moreover, they have asked to the state to loosen the monetary policies in order to make capital access more feasible.
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VSA has officially asked the government to consider lowering the ingot steel export tax to 10% from 20% currently, and establishing an ingot steel reserve fund under the control of the Ministry of Industry and Trade, in order to help stabilise ingot steel prices in case of world price fluctuations. |
VNN
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