Posted on 23 October 2007

 

Source: BVOM, October 22, 2007

The suggestion by the Ministry of Finance's Price Control Department on cutting the import tax on finished steel has not been applauded by local steel producers.

Dau Van Hung, Director General of the Vietnam Steel Corporation (VSC), shared his view on the suggestion.

Mass media have reported the price decreases of ingot steel. Does this mean that the finished steel prices of VSC and its subsidiaries will go down?

Currently, the information about ingot steel prices in Southeast Asia and Vietnam's markets is coming from different sources; therefore, the price levels are relatively different.

The ingot steel price keeps rising, creating disadvantages for both producers and consumers. The prices of VSC's products and other domestic mills' products now vary, depending on the production and management skills of enterprises.

VSC, as a state-owned corporation, has to fulfill two tasks at the same time: make profit and stabilise the market. The implementation of the latter task can be seen in a series of contracts VSC has signed with big groups and general corporations, under which VSC promises to provide steel at stable prices to the nation's key construction works.

However, it would be unfair if consumers demanded that VSC kept the prices unchanged for a long time.

What would you comment about the conclusion of inspectors that the steel price could be lower if steel mills cut production costs?

Currently, VSC and its companies hold 40% of the market share, while the other 60% is held by other producers. Therefore, VSC just can fulfill part of the task on stabilising the market, while state management authorities must take the main responsibility for this.

VSC has promised to inspectors to cut several expense items in production. However, I think that cutting expenses is not the optimal solution. How to solve the problem of ingot steel shortage is the priority task for VSC. Therefore, the corporation is trying to seek partners which can cooperate with VSC in making ingot steel.

VSC is now carrying out the second phase of the ingot steel production project at the Trai Cau-Tien Bo mine in Thai Nguyen province, which is expected to put out 0.5mil tonnes of ingot steel. It is also implementing a joint venture project with China's Kun Ming group in Lao Cai. Besides, VSC is moving ahead with a project on cooperating with India's Tata Group to build a 4.5mil tonne steel plant at Thach Khe mine in the central province of Ha Tinh.

Once the projects become operational, I believe that Vietnam will be able to settle the existing problems, and the steel fever will disappear.

However, it is the scenario for the future. In the immediate time, the Price Control Department is going to propose that the government lower the import tax on finished steel. Do you think the tax cut will help ease the steel shortage and reduce selling prices?

As far as I know, it is just the proposal of the Price Control Department. Therefore, I cannot say how this would affect steel prices at this moment. However, I have heard that the proposal has been facing strong opposition from local steel producers. You may know that our long-term goal is not to encourage imports of finished steel.

The government of China is applying a lot of measures to restrain ingot steel exports, while encouraging the exports of finished steel to regional countries and the markets they target.

I understand why the Price Control Department lodges such a proposal: it wants trading companies to import more steel so as to cool the market down. However, I don't think that the department would reach its goal by cutting the tax. No one can say for sure if Chinese suppliers will sell steel at the previous price levels; they may make corrupt use of this to push the prices up.

Therefore, I think that the government should keep cautious when deciding to lower the tax on finished steel imports, otherwise, the main beneficiaries in this move will be foreign enterprises, not Vietnamese consumers.

In other words, if the government decides to cut the tax from 8% to 2% as suggested by the Price Control Department, we will 'fall into a trap'.

However, it seems that state management authorities cannot find other solutions than lowering the tax.

Chinese suppliers have sent a lot of offers to VSC. However, we have not made any deals yet. I know that since the price offered by Chinese suppliers exceeded the $605/tonne level, several steel producers have bought ingot steel from other sources (Malaysia, Thailand, and Indonesia) at prices lower by 30%/tonne on average compared to Chinese products.

Since local producers have stopped signing contracts on purchasing ingot steel at prices over $600/tonne, China-sourced ingot steel has stopped increasing.

The steel price on the domestic market has cooled due to the reduced demand. It is because many construction firms have big stocks. Therefore, local steel producers will find it hard to raise the selling prices.

VSA's members have an agreement on keeping the current selling prices unchanged, at VND10.6mil/tonne on average, while Natsteel Vina is selling at VND11mil/tonne.

 

 

 

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