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Steel price fix under antitrust probe
With steel supply set to outstrip domestic demand by far, the outlook is bleak.
Local steel makers are facing an investigation into possible violations of antitrust laws after they agreed not to lower prices to offset losses caused by falling world prices.
The Vietnam Competition Administration Department under the Ministry of Industry and Trade said it opened the investigation on Thursday to determine whether local steel makers have violated Vietnam’s Competition Law by fixing steel prices.
At a conference held in Hanoi earlier this month, members of the Vietnam Steel Association (VSA) agreed not to lower their prices and keep them at VND13.5-14 million (US$810-840) per ton in a bid to prevent market prices from dropping further.
The association said the move was intended to help local steel makers overcome difficulties caused by falling prices and demand in the past three months.
Pham Chi Cuong, VSA Chairman, said members of the association currently suffer a loss of VND5-6 million ($300-360) for every ton of steel they sell.
“If businesses keep lowering their prices to compete with one another, many of them will end up going bankrupt, which will then threaten the existence of the whole steel industry,” he said.
According to the Vietnam Competition Administration Department, if VSA cannot prove that its decision to set a floor for steel prices does not violate Competition Law, the department will carry out appropriate measures to maintain market stability and protect the interests of consumers.
However Cuong declaimed: “We know that we will violate the Competition Law and pricing policy if we join hands to hurt consumers, and we are not allowed to do so. But that is not the case here.”
He said the move was necessary to regulate steel prices at this point to save the industry.
Market uncertainties
Earlier this year, when steel billet prices on the world market surged to record levels, many exporters enjoyed good profits by selling the billets they had put in stock earlier. Some local steel makers reported six-month revenues of up to hundreds of billions of dong, which encouraged even more investment in the industry.
But the scenario changed in the last couple of months. The slowdown in the global economy led to a drop in billet prices of more than 50 percent. “Never before has the steel market fluctuated like this year,” Deputy Minister of Industry and Trade Le Duong Quang said.
VSA said domestic steel consumption in September was about 110,000 tons, the lowest level this year. Cuong said with many construction projects halted or delayed, demand for steel has decreased and prices have fallen. Last month, the association also predicted steel consumption in Vietnam may drop this year after the government asked state-owned companies to halt construction projects that were not crucial.
Stagnant sales have left several local steel makers with no other choice but to suspend operations since last month, including Vietnam-Italy Steel, Natsteel, SSE Steel and Van Loi Steel. But “even if all local steel makers decided to stop their production by the end of this year, there would still be an oversupply of steel in the [domestic] market,” said Le Manh Hoan, deputy general director of Dinh Vu Steel Company, said. Stocks of more than 400,000 tons of finished steel and 500,000 tons of billets, worth more than US$1 billion in total, have piled up in warehouses around the country.
The market fluctuations have also led to several adjustments to tax policies within only a few months. In August, the Ministry of Finance doubled the export tax on iron and steel to 20 percent to slow exports on concerns there would be a shortage of steel for domestic consumption. But as domestic consumption became weak, the ministry halved the tax last month to help steel companies bolster sales. Then earlier this month, the finance ministry decided to cut the tax further, to 5 percent.
According to VSA, the oversupply has resulted from uncontrolled investment in the steel industry. The total steel output of all local producers reached seven million tons per year, not to mention the steel products imported from other countries, mainly China. However, the demand for steel in construction is only about 4-5 million tons per year. As a result, all steel makers are operating at about 55-65 percent of their capacity.
It gets tougher
But things can get worse for the industry.
Many foreign-invested steel plants are set to be fully operational in a few years.
Since the end of last year, three steel plant projects with huge output capacities, totaling about 32.42 million tons per year, have been approved. The plants, all located in the central region, are invested by Malaysia’s Lion Industries and Formosa Group, and Tycoon-E.United from Taiwan. The construction of other projects by India’s Tata Steel and South Korea’s POSCO will start soon, and Japan’s JFE Steel Corp has recently submitted a proposal to invest $4 billion in yet another steel mill in central Vietnam.
The Ministry of Industry and Trade’s Industrial Policies and Strategies Institute forecasts the annual steel demand of Vietnam by 2020 will be about 22 million tons. And once all the foreign-invested steel plants mentioned above come into operation seven years later, there may be a steel surplus of tens of millions of tons in Vietnam every year. The oversupply will result in intense competition, with Vietnamese small-sized steel makers likely to get hurt badly.
Nguyen Manh Quan from the ministry said all foreign investors have been warned about the low demand of the domestic steel market but they responded saying they were aiming at the global market. According to the ministry, foreign-invested steel projects will provide jobs for many people in central provinces and increase tax revenues of the country.
On the other hand, many steel projects with 100 percent foreign investment can threaten the position of local steel makers in the domestic market.
Environment worries
Experts have also raised concerns about the environmental impacts of large steel plants. Every year, these plants can produce millions of tons of waste slag and use a large amount of coal and electricity in their production. Cuong said he is worried about the capabilities of Vietnam in accessing and monitoring the environmental effects of foreign-invested steel projects. “It’s hard to monitor projects that do not have the participation of Vietnamese partners,” he said, suggesting strict requirements should be imposed to prevent unexpected outcomes in the future.
Thanhnien
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