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Tax cuts needed to save industry
Chairman of the Viet Nam Steel Association (VSA) Pham Chi Cuong spoke with Thoi Bao Kinh Te Viet Nam (Vietnam Economic Times) about steel consumption and plunges in steel prices.
Can you tell us about the recent situation of domestic and international steel markets?
Prices of steel products have continuously increased in the first six months of the year, reaching record highs by the end of June. Since then, steel prices have dropped by 50%.
A general recession in the world economy, especially in the US and western Europe, has had a negative impact on the global steel market. Prices of steel products have continuously increased in the first six months of the year, reaching record highs by the end of June. Since then, steel prices have dropped by 50 per cent.
Despite the plunge, no new contracts have been signed as prices are expected to continue dropping. A large amount of steel ingots are sitting unsold in factories. Domestic steel consumption has also decreased. September was the fourth consecutive month where the quantity of steel sold was one third of what was sold in previous months.
Due to the plunge in steel consumption and world steel prices, domestic steel companies were forced to reduce their prices. Currently, the price stands at VND14-15 million (US$848-909) per tonne.
The amount of unsold steel ingot and steel products sits now at nearly 900,000 tonnes (equivalent to $1 billion), causing many difficulties for local steel enterprises. What are the reasons?
The reasons stem from the US and EU’s financial crises following the bankruptcies of large banks in the US and western Europe, wide-spread inflation, and cuts in investment.
Even for China, the world’s largest steel producer, after the Beijing Olympics, growth in the steel sector has been limited and many companies have suffered losses. Also, world oil prices and the US dollar continue to fluctuate.
These factors have also affected the Vietnamese economy. Amid rising inflation, the Government has to take drastic measures to curb inflation including monetary tightening and reassessing and delaying a series of projects, which has lowered the demand for steel.
To help the steel sector tackle difficulties, the Ministry of Finance has cut tax on steel ingot export from 20 per cent to 10 per cent, and on October 6, to 5 per cent. Did these tax levels help ease pressure on companies?
To limit massive steel ingot exports to foreign countries, which can lead to a shortage of steel ingot for domestic factories, the ministry decided to lift steel ingot export tax from 2 per cent to 10 per cent in June and to 20 per cent in August.
However, with the current standstill in domestic steel consumption and a huge amount of overstock, steel makers stopped buying ingot, and steel ingot producers could not sell in the country or export abroad due to high tariffs while world prices dropped.
On September 14, the Ministry of Finance discussed with the Ministry of Industry and Trade, VSA, and representatives of some steel ingot producers VSA’s suggestion to reduce the export tax to 2 per cent.
The finance ministry lowered the tax to 5 per cent on October 6. But the decision has not addressed steel producers’ problems. Under the difficult situation of the steel market, VSA is asking the Government to cut steel ingot export tax altogether. Even if the tax is cut, steel ingot producers will still suffer losses.
VNN
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