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Market glut, low competitiveness could hurt steel sector
The growing number of steel factories in the country will produce a market surplus, and situation will get worse because locally-produced steel will be less competitive than imports, a top industry official said.
“The sector is likely to face an oversupply of steel as projects, mainly foreign-invested ones, have boomed in the country in recent years,” chairman of the Vietnam Steel Association Pham Chi Cuong told Thanh Nien Daily Sunday.
Steel producers in the country expect construction steel capacity to reach about 7 million metric tons this year, outpacing demand estimated at 4 million tons.
As of early last year, three steel plant projects with huge output capacities, totaling about 32.42 million tons per year, had been approved. However, Vietnam’s steel demand is estimated at only 10-11 million tons in 2010, and some 20 million tons in 2020, according to the steel sector’s 2007- 2015 development plan with a vision to 2025.
And once the foreign-invested steel plants come into operation, there may be a steel surplus of tens of millions of tons in Vietnam annually.
Cuong said most of investors come from South Korea, Japan, and Taiwan, which are big steel producers and exporters, thus they should be able to find export markets for their products.
However this might not be easy as the global market is already flooded with steel. And the oversupply will result in intense competition in which small-sized Vietnamese steel makers are likely to get badly hurt .
Cuong also warned of the possibility that firms may use interest rate-subsidized loans to import low-priced steel that may threaten local products in the domestic market.
“We have warned about the risk, and proposed that the Ministry of Finance monitors the issue more closely,” he said.
Environmental concerns
The increase in the number of large steel plants has also raised concern over their environmental impacts. Every year, the plants will produce millions of tons of waste slag and use a large amount of coal and electricity in their production.
Cuong is worried about the capabilities of Vietnam in monitoring the environmental impacts of foreign-invested steel projects. “It is hard to monitor projects that do not have the participation of Vietnamese partners.”
Some 30 percent of steel plants in the country use outdated technology, and only 10-20 percent use advanced technology, according to the association.
According to the Ministry of Natural Resources and Environment, the steel sector is causing the most serious environmental pollution among 18 industries surveyed.
Cuong said: “We have proposed relevant agencies review the implementation of environmental regulations. Projects violating them should be suspended.”
Foreign currency problem
Some steel firms have recently faced severe difficulties because of their inability to access bank loans in foreign currencies to import materials. Some commercial banks have regulations to facilitate firms in using foreign currencies to import steel billet or steel products, but not scrap steel or coke, which are materials used for steel production.
Vietnam now imports 70 percent of scrap steel for its billet steel production.
“The government will intervene in the issue, and the State Bank of Vietnam has promised to consider it, so I think it is a short-term difficulty,” Cuong said.
Despite the difficulties, the steel sector is still optimistic, hoping to ride on the effectiveness of the stimulus package and gradual recovery of the economy.
“The steel sector is expected to post a growth of 7-8 percent this year. It grew 5 percent in the first half of this year, and is expected to continue to grow in the remaining months,” Cuong said.
Under the 2007-2015 plan, Vietnam plans to annually produce 15-18 million tons of steels.
Ngan Anh
thanhnien
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