Steel firms in a hole

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The steel sector’s stockpiled volume now is around 500,000 tonnes against the average 200,000-300,000 tonnes, according to Vietnam Steel Association (VSA) chairman Pham Chi Cuong.

“Given current lending rates of 18-20 per cent per year, each tonne of steel bears an interest of around VND200,000-$300,000 ($9.5-$14.5) as steel firms’ working capital is mostly loans,” Cuong said.

Reality shows that blast furnaces at Haiphong-based Van Loi Joint Stock Company - one of leading steel supplies in northern Vietnam – have seen an unusual production schedule since they operate one month than rest the following month due to lack of materials. The firm also saw dwindling sales on the back of a lackluster market.

Two blast furnaces at Dinh Vu Steel Joint Stock Company face weird production schedules.

“Blast furnaces worldwide often operate incessantly for 10 years before resting. One month in operation, one month off would make operating costs to spike as we need to use expensive coke coal to restart the furnace,” said an industry expert.

Stagnant construction sector and banks’ restricted lending have eroded local steel firms’ comparative advantages in competing with imports.

Cuong said many firms have their backs against the wall due to some factors such as careless investment plans and management agencies’ loosened management.

For example, in 2009, the Ministry of Industry and Trade (MoIT) made public regulations allowing local firms to pump capital into making steel billets. Under those regulations the furnace capacity must be at least 500 cubic metres. If the furnace uses imported ores and is positioned in coastal areas, its capacity must be at least 1,000cu.m with a minimum production capacity of 70 tonnes per batch.

However, these regulations were ignored by local governments in appraising the steel sector’s investment projects. According to VSA statistics, Vietnam is currently home to 31 electric arc furnaces with the furnace largest capacity of around 300cu.m.

A United Nations Industrial Development Organization (UNIDO) recent survey of 18 local steel firms indicated great waste in terms of resources at a number of local steel making facilities, said UNIDO expert Chu Duc Khai.

“Massive investment into steel sector development recently reflected many local firms deliberately imported les-than-modern Chinese technology and equipment into Vietnam for steel production,” Khai said.