Vietnam News Network

In just one month, the price of steel has fallen three times, despite the fact that construction season has arrived. Viet Nam News reporter spoke with Nguyen Tien Nghi, deputy chairman of the Viet Nam Steel Association, to find out the reasons behind the drop.

Could you please tell us something about the steel market in Viet Nam from the beginning of this year?

When 2009 began, many experts predicted that steel consumption would not increase because of the recession. They predicted the growth rate to be between 3 and 5 per cent.

As predicted, steel sales in the first quarter were not good, and many domestic companies faced losses.

However, the industry saw good signs in the second quarter.

In April, the country consumed 430,000 tonnes of construction steel, but that figure could not be retained, and sales began to fall again from the beginning of September.

In September, only 287,000 tonnes of steel were sold. And the figure for October was estimated at only about 250,000 tonnes.

Due to the declines in consumption, the price of construction steel began to reduce.

The Viet Nam Steel Corporation recently cut down its price by VND200,000-300,000 (US$11-16.8) per tonne.

This was the third time that steel prices fell in just a single month. It now stands between VND10.5 million ($589) and VND10.8 million ($606) per tonne (not including value added tax).

Why are steel prices still dropping, even now that it’s construction season?

You’re right! This is a big difference in the steel market this year.

In previous years, when the construction season started, steel consumption rose alongside it. But this year, the exact opposite has happened.

There are many reasons for this drop.

Since September, the price of steel materials on the world market, including pig iron, has been stable, at about $470 per tonne, compared with the highest price of more than $500 per tonne last year.

Low prices for steel materials on the world market have directly affected domestic construction steel prices.

Though consumers can also be blamed.

When they saw prices on the world market come down, domestic consumers stopped buying steel from the domestic market. To avoid risks, they waited for lower prices.

Steel traders have not bought more steel from the manufacturers. They just sell what they have in store. Meanwhile, construction projects purchased large volumes of steel in Q2, so now they do not need much more.

Demand on the world market has also remained weak, which is why foreign exporters have found ways to cut down their costs. Their governments have pointed out many policies to encourage steel exports.

This is the reason why the price of imported steel has been strongly reduced.

This has forced domestic companies to cut down their prices to compete with imported steel, lest they face big losses.

What has been the impact of imported steel on the domestic market?

Actually, Vietnamese steel companies have been strongly affected by imported steel.

For many years, domestically produced steel could not compete with imported steel because of higher prices and lower quality.

The situation is the same this year. Import steel is more competitive, as it is about VND500,000-700,000 cheaper than Vietnamese steel.

In previous years, we had to compete with Chinese steel. This year, however, the biggest competitors of the Vietnamese steel industry are other ASEAN countries.

Many years ago, about 65-70 per cent of imported steel came from China. This year it will be just under 10 per cent.

In the past, ASEAN steel could not come to Viet Nam’s market because its quality was the same as Vietnamese steel, and it was not much cheaper.

But this year ASEAN countries have made many priority policies to encourage steel exports in order to overcome the world recession.

Moreover, thanks to the commitments of the ASEAN Free Trade Agreement, import tax rates for ASEAN steel in Viet Nam are zero. ASEAN steel has become a strong competitor for these very reasons.

This year, steel imported from ASEAN countries will account for 74 per cent of imported volume.

What should domestic companies do to compete with imported steel?

As a matter of fact, we’ve not yet had any official reports on the losses that domestic companies have suffered from imported steel. But they could be huge.

To avoid these losses, we advise companies to study ways to cut down their costs.

In the long term, they must invest more capital into advanced technologies, to improve production quality and capacity so they can be competitive on a global scale.

On the association’s side, we’re finding new markets to boost our exports. Recently, we’ve exported steel to Laos, Cambodia and Myanmar. And I think that the export market can be expanded even further.

We also proposed that customs agencies strengthen supervisions on imported steel, especially when checking the quality. The reason for this is that ASEAN steel can be exempted from import taxes only when it’s localisation rate is 40 per cent.

What are your predications for the steel market from now to the end of the year?

I think that steel prices will change, but not by much.

This year, the association predicted that the entire country would consume 5 million tonnes of steel, up roughly 20 per cent over 2008.