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Steel prices to rise again on higher tax   2008-12-24 - VNN

On January 1, 2009, the value-added tax (VAT) on steel production will be raised from 5% to 10%, while scrap steel, input materials for steel production, have been increasing in price, all of which has led to forecasts about steel price increases early next year.


The sale prices applied by domestic enterprises are currently staying at VND10.8-11.3mil/tonne, not including VAT. As such, the sale price will be VND11.3-11.8mil/tonne if counting the currently-applied VAT tax rate at 5%. However, the price will be even higher as the VAT tax rate will be 10% as of January 1, 2009. At that time, buyers will have to pay VND500,000 more for every tonne of steel.

Steel mills say that scrap steel in the world’s market has been increasing in price, now selling at $275-300/tonne, an increase of $20-50/tonne compared to three weeks ago. The scrap steel price hike will certainly lead ingot steel to increase in price, which then will make finished product prices increase.

The worry about the overflow of China-made cheap steel products into Viet Nam has not come true yet, since the export tax rate the country imposes on steel exports remains high at 15%. Meanwhile, Viet Nam has raised the import tax rate on steel from 8% to 12%. The production cost of China-made steel proves to be high as it bears both the high export tax in China and high import tax in Vietnam, which makes it unable to compete with Vietnam-made steel products.

Domestic steel producers have been exploiting this to raise sale prices. In early October 2008, construction steel was sold at VND9-10mil/tonne, not including VAT, while the price has been raised by VND2mil/tonne.

Even with the increased prices, local steel producers say they are still incurring losses, as the steel was made of input materials imported before at high prices (ingot steel was imported at $700/tonne). However, the current domestic sale price is still VND2mil/tonne higher than the world’s price.

Ingot steel is now being offered to Vietnamese enterprises at $390/tonne. If counting the 5% import tax and transport fees, laminating expenses, the sale prices of finished products should be VND9mil/tonne, not including VAT.

Local steel mills raised the sale prices right after the ingot steel price increased in the world’s market. However, they have not slashed sale prices since the world’s prices have gone down. The domestic price is still VND2mil higher than the world’s price as enterprises, reasoning losses, have been insisting on keeping the high prices.

According to the Viet Nam Steel Association, its member companies sold 382,000 tonnes in November, a three-fold increase over October 2008. It is expected that sales will only be 300,000 tonnes in December 2008.



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