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Vietnamese steel plants struggle amid stagnant market - Report

Steel News - Published on Tue, 19 Jun 2012

Standing in the shop full of local and imported steel products on De La Thanh Street, saleswoman Ms Nguyen Thi Thuy said that she had not received any customers all day.

She added that \"We have never seen sales as slow as they are now. Our sales are down 30% over the same period last year. Last year, we suffered a big loss. However, I think that this year’s loss will be even bigger.\"

Ms Thuy said that her shop used to purchase hundreds of tons of steel from local producers and importers, but the steel volume sometimes was not enough to meet customers\' demand. However, in recent months her shop has only bought less than a hundred tons due to lowered demand.

With fewer customers, Ms Thuy said, her shop has had to cut its staff to three people from eight last year. Her recent experience is not unusual among steel agents.

According to the Ministry of Industry and Trade, some 1.95 million tonnes of steel was sold on the Vietnamese market in the first five months of this year, down by 6.9% over the same period last year. In May alone, steel sales reached 370,000 tonnes, down 16.4% from the previous month.

Mr Pham Chi Cuong chairman of the Vietnam Steel Association said that \"The decrease is the result of the frozen property market, which has forced many firms to delay business plans.\"

Mr Cuong said that some steel firms have reduced their prices by VND 100,000 to VND 150,000 per tonne to boost sales. Others have offered to pay customers\' transport fees, or allowed them to defer payments. However, sales have remained slow, resulting in large stockpiles of steel.

The trade ministry said that the stockpile was estimated at 320,000 tonnes late in May 2012, up by 25% over the previous month. Despite the slowdown in steel sales, prices remain quite high, at up to VND 17.7 million per tonne. The prices should have been reduced to VND 16 to VND 16.5 million per tonne, explaining that such prices could ensure the profitability of firms after calculating the cost to import steel billet, which is now estimated at some USD 620 per tonne, plus production costs and other related fees.

Industry insiders said steel mills keep the prices high so as not to affect their agents\' commissions, which motivate them to improve sales. Commissions are estimated to be VND 200,000 to VND 350,000 per tonne of steel sold.

The ministry said many steel mills have been running at only 40% to 50% of capacity in recent months. Although construction has been completed on some new plants in Da Nang and the northern provinces of Thai Binh and Thai Nguyen, with the capacity to produce 250,000 to 500,000 tonnes annually, they are not operating.

Mr Cuong of the steel association said that meanwhile, five steel mills have ceased production over the past few months. He said the rampant development of steel mills has caused a surplus in the market, one of the reasons for slow sales. The country now has over 400 steel plants.

According to the association, local demand is only around six million tons a year, but annual supply has reached nine million tons. It said the rush to develop steel plants was caused by an increase in prices since 2005, making the projects attractive to both local and foreign investors.

The association added that the demand for steel is forecast to remain low in the coming months, as many property projects have been delayed due to shortages in capital.

Local steel producers are also concerned over fierce competition from low priced products from China and other Southeast Asian markets. The US and Europe are forecast to reduce their imports of steel products, which will negatively affect Vietnam\'s steel exports. Moreover, Vietnam steel exporters face the risk of anti dumping lawsuits.

In 2011, the country exported some two million tons of steel worth USD 2 billion, up by 56.2% in value over the previous year. Local steel mills are also worrying about higher production costs this year as the price of electricity, fuel and coal have increased. Meanwhile, interest rates of 17% to 18% are considered too high for steel producers which depend on bank loans for 70% to 80% of their total capital.

According to the association, the steel industry has targeted growth of 3% to 4% in 2012, much lower than the peak of 20% between 2005 and 2009.

Mr Cuong said that \"The most important goal for local steel mills this year is to maintain production in an effective manner and not even consider expansion at this time. The industry should be restructured to ensure that it could effectively operate in 2012. We should eliminate ineffectively operated projects.\"

Source - Thanh Nien News

(www.steelguru.com)

Posted By : admin on Tue, 19 Jun 2012
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