More steel giants queuing up despite oversupplying risk
08-AUG-2008 Intellasia | The Saiogn Times Daily page 3
Aug 8, 2008 - 7:00:00 AM
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Several billion-dollar steel projects are waiting for licenses in Vietnam although the country will face an oversupply by merely steel mills already approved, industry sources said.
Maju Sta billion Sdn., a unit of Malaysia's Lion Group, and Vietnam Shipbuilding Industry Group (Vinashin), for instance, are seeking permission from the government to build a steel plant worth nearly US$3 billion in the southern coast province of Ninh Thuan. This project will have an initial annual capacity of 4.5 million tonnes, which will be increased to 10 million tonnes by 2025.
The local shipbuilder Vinashin is expected to hold a 30% stake in this venture.
Another large-scale one is the VnSteel joint venture between Vietnam Steel Corp and India's Tata. The steel complex would hope to use feedstock from the Thach Khe iron ore deposit, which would need the mining of 4.5-5 million tonnes a year.
Furthermore, South Korea's Posco is seeking a license to construct a US$5.3 billion steel complex in the central coast province of Khanh Hoa, which should be able to turn out four million tonnes in the first phase alone.
The long list, albeit positive in a sense that Vietnam is attracting large amounts of foreign direct investment, has raised concerns over a redundant supply, and prompted suspicion over whether such large and ambitious projects will ever come to fruition.
Pham Chi Cuong, chair of the Vietnam Steel Association, said the country would face a glut of steel products in the years to come if all of the abovementioned complexes are put into place, let alone several already-approved steel mills.
"Vietnam will take a great leap in the steel industry with mills capable of churning out many million tonnes of steel products a year," he said.
In the approved steel industry development strategy, the demand for finished steel in Vietnam will reach 10-11 million tonnes by 2010 and over 20 million tonnes by 2020.
Therefore, Cuong said, Vietnam would only need to build one or two steel mills to meet domestic demand for the next 10 years, while those projects having won the ticket and those most likely winning a slot would send the total output jumping to over 40 million tonnes a year.
Authorities have recently awarded licenses to two huge complexes.
The most recently licensed project is the Son Duong Formosa steel complex worth US$7.9 billion in Vung Ang Economic Zone, which is envisioned yielding 15 million tonnes a year, including an annual 7.5 million tonnes in the first phase. The other project is the Tycoon-E-United project in Quang Ngai Province, with an annual designed capacity of over five million tonnes a year.
Cuong, therefore, is worried that some of the investors had received licenses but would not deploy but transfer the projects to other investors. They would rethink their investment scales if many large-scale steel projects are implemented at the same time, he noted.
Moreover, the demand for fuel to run the projects would be huge, Cuong said.
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