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First steel trading floor aims for clarity in ambiguous market
Vietnam’s first steel trading floor will open next month as organizers hope to stabilize the volatile market with increased transparency.
The Saigon Thuong Tin Commodity Exchange Company (Sacom-STE), an affiliate of Sacombank Group, will use VND200 billion (US$11 million) in investment from the lender to develop infrastructure and facilities for the floor.
Sacombank Chairman Dang Van Thanh said the steel industry was vital to supporting the vast infrastructure projects at the heart of Vietnam’s socio-economic development plans.
However, he said the steel market was being manipulated by traders and distributors who deliberately control pricing.
“As a result, buyers and sellers are the real losers as they have little influence over the commodity,” he said, adding that the floor would help stabilize the market via more public and transparent trading.
The chairman said the bank would reserve loans worth VND2 trillion ($110 million) to give businesses who trade on the floor, which is waiting for a license from the government before it can open as the first non-gold commodity exchange in Vietnam.
Distribution breakdowns
Pham Chi Cuong, Chairman of Vietnam Steel Association, said Vietnam’s steel market was underdeveloped because Vietnamese producers did not invest in distribution networks.
“Producers paid a lot of attention to investing in technology while they were not interested in distribution.”
Cuong said producers thus lost all pricing power to distributors and still most producers had no plans to change this situation.
Current distribution systems lack “transparency in sales,” he said.
Steely inspection
Cuong also said that the steel industry suffered from a lack of inspections and regulations to prevent poor-quality products from entering the market.
He said faulty steel products too often found their way into construction projects, putting major structures at risk of collapse.
To trade on the new floor, however, steelmakers would have to prove their quality and undergo inspections, Cuong said.
The government was concerned about the situation, he added, saying that it had sought to instate price and quality control measures similar to those it used under the old state-subsidy system before Vietnam initiated market economy practices.
Imbalances, new threats
Half of the steel products used in Vietnam are imported, driving costs up and making prices unstable.
Local and foreign-invested producers import nearly 100 percent the raw steel materials needed to make finished products, which only meet 50 percent of the country’s construction and manufacturing demands.
Do Duy Thai, chairman of Viet Steel Group, said imports were filling local warehouses and hurting domestic producers’ sales.
The country has imported 8.6 million tons of steel since the beginning of the year, in addition to 2 million tons of imported products stockpiled last year.
But local consumption, which has grown 12 percent since the beginning of 2009, was only about 6 million tons over the period.
Real estate, the main consumer of steel industry products, was no longer a reliable customer as sales to the sector had plummeted 40 percent since a new capital gains tax halted property market activity in late September, said Thai.
Vietnamese steel makers could easily compete with the mainly unlabelled steel produced in Southeast Asia, according to Thai, and he said commercial banks should not give loans to steel importers due to current high inventories.
Cuong from the association said the steel market would soon be flooded due to an influx of major steel production projects across Vietnam.
Last October, Korea-based Posco opened the biggest cold-rolling mill in Southeast Asia in the southern province of Ba Ria-Vung Tau.
Sacombank, the country’s largest commercial bank, has been the biggest loan provider to steel industry, providing VND5.8 trillion ($322 million) in loans to the industry so far.
Minh Quang
thanhnien
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