New Vietnam Steel Plant Begins Production

The Song Hong Steel Plant in the Phu Tho province in the north of Vietnam commenced operations on Saturday, adding another facility to an industry already facing overcapacity.

The new plant, built at a cost of about VND234 billion (US$13.4 million), has a capacity of 180,000 tonnes per year and uses production technologies from Taiwan and Japan.

The plant expects to produce 120,000 tonnes of steel this year, earning VND 1.5 trillion ($85.7 million), before increasing to full capacity and earnings of VND2.5 trillion ($142.9 million) in 2012.

The plant's owners, Song Hong Steel Joint Stock Co and the Song Hong Corporation, plan to build two more production lines and a pig iron plant iron.

At the opening ceremony on Saturday, the Song Hong Steel Joint Stock Co signed contracts with Dong A Bank, PetroVietnam Finance and the Bank for Investment and Development of Viet Nam (BIDV) to finance the expansion.

In the past two years, a number of major foreign-invested steel projects have been licensed. Six of these, with a total potential annual output of nearly 35 million tonnes, have been granted licences and are under construction. If all of these projects, along with facilities being planned and built by domestic investors, are completed on schedule and run at design capacity, it is estimated the industry will churn out 50 million tonnes of steel annually.

But estimates from the Ministry of Industry and Trade's Strategic Research Institute puts domestic demand for steel at roughly 20 million tonnes by 2020, rising to about 25 million tonnes under a plan approved by the Prime Minister in 2007.

The chairman of the Vietnam Steel Association, Pham Chi Cuong, said just one or two of these major steel projects would be enough to meet expected demand.

Meanwhile Vietnamese steel continues to struggle against Chinese imports due to the higher price of domestic steel. Chinese steel products averages about VND10.9 million per tonne compared to VND13.3-13.5 million per tonne for the domestic product, according to the VSA.