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Vietnam sees a steel surplus
The Ministry of Industry and Trade (MoIT) has asked provinces and centrally-run cities to stop granting new investment licenses to steel projects and carefully revise existing contracts as the domestic steel supply has exceeded demand.
According to economists, the MoIT’s request is essential, but it has taken a long time to respond to the rapid development of steel projects.
A boom in steel projects
Right after the MoIT requested a review of the domestic production sector, on July 13, Nippon Steel Vietnam received an investment license to build a plant worth US$31 million in Phu My 2 Industrial Zone in Ba Ria-Vung Tau province. Like other steel projects in Ba Ria-Vung Tau, Nippon Steel was granted a business license by the management board for industrial zones, while the provincial Department for Industry and Trade is in charge of drawing up zoning plans for local steel production. Therefore, improper zoning plans on steel production were hotly debated at a meeting of the Ba Ria-Vung Tau provincial People’s Council on July 14 where both the management board for industrial zones and the provincial Department for Industry and Trade had to explain their actions.
Ba Ria-Vung Tau has 16 steel projects, the highest number in the country. The province also granted business licenses to many projects that had not been listed in the zoning plan. It is now facing an oversupply of steel products. However, the province is still suffering from a shortage of high-quality steel for its shipbuilding sector.
Tran Thi Huong, Director of the Ba Ria Vung Tau provincial Department for Industry and Trade, says that the MoIT should consider granting business license to urgent projects. She also suggests suspending some steel projects that use high amounts of electricity and cause environmental pollution.
According to the steel production zoning plan for the 2007-2015 period, with a vision to 2025, approved by the Prime Minister in September 2007, only 23 steel projects are allowed to be put into operation by 2015. In fact, by the end of 2009 as many as 65 steel projects had been licensed, with a total output of more than 35 million tonnes each year. However, it is estimated that the domestic demand will only reach 15 million tonnes by 2015 and 20 million tonnes in 2020. As a result, the supply is 1.5 or 1.8 times higher than the demand.
Six out of 16 steel projects have been approved by the Prime Minister while up to 32 other steel projects that have been licensed have not been approved by the PM.
A boom in steel projects will lead to a drop in productivity which happened in the country several years ago, according to the Vietnam Steel Association (VSA). Notably, many businesses which do not specialise in steel actually invest in steel projects. The President of the VSA, Pham Chi Cuong, said that localities have approved too many steel projects and they have been too eager to attract investment.
Doing more harm than good
The second problem is that many localities have granted licenses to steel projects without being approved by the central government. In addition, there has been an overlapping in legal documents.
According to the Investment Law, granting licenses to steel projects in groups B and C with capital below VND1,500 billion is allowed. However, according to the Law on Construction and Decree 16/2005 ND-CP, for projects in group B which have been included in zoning plans, it is necessary to get approval from the authorities. Therefore, it is necessary to closely supervise steel projects based on reality, source of materials, and other related factors.
In fact, a number of steel projects are causing a huge waste of land and money, and even pollution to the surrounding areas.
To produce one tonne of steel, 1.7 tonnes of CO2 is discharged into the environment in Europe and 9 tonnes of CO2 in Vietnam. In general, producing one tonne steel also produces 200 kilos of scrap into the environment. How the steel sector can solve its waste in Vietnam remains a question mark.
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