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high inventories weigh on vietnam steel prices High inventories weigh on Vietnam steel prices
Source: Dow Jones



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Steel CatalogVietnam's steel industry is facing a conundrum. Despite high inventories of steel products, which are depressing prices, imports of crude steel are rising in tandem with growth in production capacity for finished steel.

As a result, Vietnamese steel product prices are likely to remain under pressure for a long time.

Illustrating the imbalance between upstream products such as crude steel and downstream finished products, the U.S Geological Survey said Friday that Vietnam produced an estimated 2.95 million metric tons of rolled steel and just 658,000 tons of crude steel last year.

Vietnam imported some 3.24 million tons mostly crude steel in the first seven months of this year, over 70% of the year's planned imports, according to data from the Vietnam Steel Association, or VSA, released this week. Imports were worth $1,86 million, up 39% on year.

Payments for imported steel and iron are expected to soar 34.3% to $2.04 billion this year, according to Vietnam's General Statistics Office.

Steel prices fall on excess supply
Steel prices in Vietnam have fallen by over 10% from their record high levels last year to around $443-$462/ton, as finished steel supply has vastly exceeded domestic demand.

Domestic stocks of finished steel are at a record high level of close to 500,000 tons, according to latest data from the Vietnam Steel Association, or VSA, released this week.

Local construction firms, the industry's key consumers, meanwhile have been facing difficulties because of changes in land and housing regulations, sharp increases in petrol prices and transport charges and rising bank interest rates, said VSA General Secretary Dinh Huy Tam.

Some analysts argue high stockpiles and increased production will ensure steel prices won't recover even when construction activity picks up after the rainy season, which ends around October.

With the country's total finished steel capacity at 5.8 million tons and consumption this year forecast at only 3.15-3.30 million tons, most fear the slump in steel prices may continue.

Domestic sales of steel fell 12% to 1.26 million tons in the first half of the year and VSA said the industry may fail to reach its target of selling 2.70 million tons of steel this year.

Domestic steel producers, however, say the current stock levels are acceptable.

Only half of the stocks are for use in the construction industry and the rest consists of bar and plate steel which are not produced locally and are used in the power and shipbuilding industries, said a spokesman from state-owned Vietnam Steel Corporation.

Still, there's no denying the fact that high inventory levels have forced most steel producers to cut output this year. In the first six months of 2005, steel production was down 16% to 1.32 million tons.

More capacity coming on board
To add to the woes of Vietnam's steel industry, there are several new projects in the pipeline, with at least four steel mills coming into operation this year with total annual capacity of 1.3 million tons.

They include the Phu My cold rolled-steel project, the Phu My Steel Factory which will produce steel ingots, the Da Nang rolled steel factory, as well as an expanded Thai Nguyen Steel Complex.

Those projects could further increase the need to import crude steel as Vietnam currently imports more than 80% of its raw materials to make finished steel.

A slew of other new steel projects have also been announced in the past month, and while these are expected to greatly reduce Vietnam's dependence on imports of steel products, the additional output will continue to keep prices pressured, said analysts.

Asian Steel Company Ltd., a unit of Japan's Sumitomo Corp., received its license to build a 12,000-ton-a-year steel mill in Da Nang City in South Vietnam, state media reported Thursday.

Earlier, Nippon Steel Trading Co. Ltd. said it will build a 48,000-ton capacity steel plant near Hanoi in 2006.

There are however, two projects in the pipeline that could possibly lead to a reduction in the import of crude steel by Vietnam.

Next year will see the beginning of a mammoth steel project in Vietnam, one that is expected satisfy much of the domestic demand for crude steel and even have excess for exports, according to a local analyst who declined to be named.

The Thailand-based Tycoons Worldwide Group's $1 billion steel project in Dung Quat Industrial Park in Central Vietnam, will be able to churn out 5 million tons of steel ingots a year at full capacity. The company will import iron ore to make ingots.

Last month, however, the Vietnamese Government approved a pre-feasibility study to exploit the country's largest iron ore deposit in the central province of Ha Tinh. Vietnam's Ministry of Industry has also worked out a plan to build a $3 billion plant to process ore from the deposit.

The Thach Khe iron ore deposit is considered one of the largest reserves in Southeast Asia, holding and estimated 550 million tons of ore with a 60% iron content.