With prices of domestically made steel products overly high in Vietnam, Chinese, Thai and Indonesian steel are likely to take advantage.
While the ingot steel and finished steel products’ prices have been dropping sharply in the world market due to oversupply, domestic prices have been continuously increasing. By the end of September 2009, the steel price has increased by 400,000-500,000 dong per tonne.
Domestically made steel products have been escalating for several months. A tonne of bar steel is now selling at 11.6 million dong, while a tonne of coil steel at 11.3 million dong (not including value added tax VAT). The retail price in HCM City market has reached 12.4 million dong and 12.1 million dong per tonne, respectively, which represents the 300,000 dong per tonne increase in comparison since the beginning of the month.
Meanwhile, the ingot steel price in the world’s market has dropped to $490 per tonne, a sharp decrease of $40-60 per tonne over the last month.
Despite the sharp fall of ingot steel prices in the world’s market, domestic producers still do not intend to slash sale prices.
Experts say steel production cost now in Vietnam is about $600 per tonne, which means that with the sale price of $630-640 per tonne, producers make profits of $30-40 per tonne, or 500,000-700,000 dong per tonne.
Meanwhile, experts, say,100,000 dong per tonne would be considered the ideal profit in steel production.
Analysts say the reason behind the refusal to drop prices is that steel producers only accept price cuts when they have big stocks and they cannot sell products due to low demand. However demand remains high.
Meanwhile, when asked why they do not slash sale prices, steel mills said that they need to maintain high prices in order to cover the losses they incurred in 2008.
In the meantime, however, foreign made steel products are flowing into Vietnam. Steel is being imported in large quantities from Malaysia, Thailand, Indonesia and China. According to the Vietnam Steel Association, the imports are about 40,000-50,000 tonnes a month.
According to Dao Dinh Dong, head of the market division under the Vietnam Steel Corporation (southern office), in general, Chinese steel mills put out 42-43 million tonnes a month. However, the output soared to 50.7 million tonnes in July and 53 million tonnes in August. This has resulted in large stocks in the context of decreasing demand and sharp falls in steel price.
Therefore, Chinese mills have targetted exports to neighbouring countries, including Vietnam, by offering very competitive prices.
Dong is worried that Chinese steel producers’ export may be boosted further by the decision by Vietnam’s government to allow the higher VAT tax fund of 12 percent instead of five percent, possibly to take effect in October 2009. If this happens, China made steel will become even more competitive.
Nguyen Tien Nghi, Deputy Chairman of the Vietnam Steel Association, has warned that if domestic producers do not adjust the sale prices, they will not be able to sell products.
Source: Vietnam Net
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