The steel market is seething with the news that the government of China will raise the tax rate on ingot steel exports to 15% from the current level of 10%.
According to Hoang Van Tong, deputy director general of the Thai Nguyen Cast Iron and Steel Company, the information about the higher export tax on ingot steel worries Vietnamese steel producers.
With the new tax rate, China-sourced ingot steel will be US$20-30/tonne more expensive, which will make the production cost of Vietnam-laminated finished steel higher, as Vietnamese companies export 70% of ingot steel from China.
Analysts said that local steel producers who have been relying on imported ingot steel will suffer from the new tax policy. The higher ingot steel prices will make the production cost of finished steel higher. Meanwhile, local producers will have to compete fiercely with China-made products, which will be cheap thanks to the Chinese government’s policy of refunding taxes to Chinese steel exporters.
The analysts said that Vietnam had no other choice than produce more ingot steel domestically. Currently, the price of locally made ingot steel is US$15-20 per tonne lower than imported products.
According to the Vietnam Steel Association (VSA), with its existing mills, Vietnam can produce 2 million tonnes of ingot steel, meeting 50% of the domestic demand. However, in order to make the 2 million tonnes of ingot steel, the mills would have to import 1.2 million tonnes of scrap steel, while the current regulations put a lot of difficulties on scrap steel importers.
In 2006, enterprises planned to import 800,000 tonnes of scrap steel, but they finally imported 600,000 tonnes only.
Experts have said that the plan to import 1.2 million tonnes of scrap steel and produce 2 million tonnes of ingot steel proves to be unfeasible.
The problem does not lie in the short supply, but in unclear regulations related to imports of scrap steel. Trading companies have not been allowed to import scrap steel any more, only steel producers can import scrap steel themselves to serve their production plans.
However, it is very difficult for steel producers to import scrap steel themselves. According to VSA, with imports of 100,000 tonnes every month and the average price ofUS$300/tonne, it will costUS$30 million a month to import scrap steel, which cannot be arranged by steel producers without the involvement of trading companies.
VSA said that its members were still waiting for guidance from the Ministries of Trade, and Natural Resources and the Environment on imports of scrap steel but legal documents had not been released yet.