Steel speculation on danger
During March, the steel price at factories was around 12.1 million dong per tonne (excluding value added tax-VAT). Till April 7, the steel price jumped to 14.1 million dong per tonne. Thus, within one month, the steel price has increased by two million dong per tonne. The steel market is causing shocks to steel manufacturers themselves and consumers. And that is not all; the steel price is forecast to continue to increase in coming time, so speculation prevention is necessary.
In the domestic market, after Tet holiday, the input material price of production sector increased strongly such as oil and gas, electricity and coal. Additionally, producers will have to face many difficulties because in 2010, the government will stop preferential and the negotiable lending rate at banks is higher. However, these common difficulties are not big enough to be able to cause an increase in steel price. The main reason was due to high import price of steel billet and scrap steel.
According to Vietnam Steel Association (VSA), most recently, the world’s biggest iron ore supplier-Australia (accounting for 75 percent of the world’s iron ore reserve) announced to increase the iron ore price by 40-50 percent (from over $80 to $140-150 per tonne) against 2009′s and offer quarterly sales but not sign long term contracts to continue to increase the price in coming time. The price of fat coal import also increased over 80 percent. Pig iron price also increased sharply. Accordingly, from April 2010, a new price benchmark of materials will be applied for all steel producing countries, including Vietnam.
According to the domestic market management group’s report, the steel billet import price increased over 40 percent from $580 to $614 per tonne in the end of March, increasing $70-80 per tonne against the previous month and rising $115-130 per tonne against last December.
Although in late 2009, a number of electric furnaces starting operation has helped the steel industry an over 60 percent steel billet supply (three million tonnes) for domestic production, VSA forecasts this year, steel sector will still have to import two million tonnes of steel billet (it was 2.4 million tonnes in 2009) for local production needs. Besides, Vietnam must import up to 70 percent scrap steel, while the import price of scrap steel has increased more than 70 percent, currently at about $430-460/tonne.
Pham Chi Cuong, VSA’s chair said that the world economic recovery triggered increasing demand of steel. Most countries are focusing on promoting the domestic consumption market, so exporting raw materials to other countries is limited. Meanwhile, a few countries with abundant resources of ore as Australia, Brazil plan to increase price to the importers.
Vietnam now has over 30 steel manufacturers, of which over half are running into losses; even some may fall into bankruptcy. Difficult production is now making the business more difficult.
According to Cuong, the monthly average steel consumption was about 450,000 tonnes, but in March 2010, the consumption jumped to 560,000 tonnes per month. This unusual consumption is not for construction projects but it is being stockpiled in commercial companies, waiting for higher price to put up for sale.
Facing above steel speculation signals, ministries of finance and industry and trade recently decided to set up inspection teams to several mills and distribution systems. The goal of this inspection is to closely control the consumption of steel to avoid the speculation and hoarding, causing monopolisation the market. On the other hand, according to the domestic market operating group, the world’s steel demand tends to re-increase strongly, so the price of material will also increase from now till the end of this year. Meanwhile, Vietnam is leading amongst Southeast Asia nations on demand of steel (in 2008, it was 8.7 million tonnes, 11.7 million tonnes in 2009 and as forecasted, the demand would increase by 10-15 percent in 2010).
Category: Business
