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Steel stocks hit record high as demand falls off

Update: July, 31/2012 - 10:04

HA NOI — Stocks of steel increased about 15 per cent at the end of June compared to those in the first months of the year, Viet Nam Steel Association chairman Pham Chi Cuong has announced.

"Never before has the quantity been as large as at present," he told the Vietnam Economic Forum website vef.vn.

According to Cuong, stores of steel now amounted to 350,000 tonnes per month while only around 300,000 tonnes were consumed. In previous years, monthly inventories ranged between 250,000 and 300,000 tonnes while about 400,000-450,000 tonnes were sold each month.

Firms were producing 30,000-70,000 tonnes per month but many could not even sell one-third of this amount. For example, the Thai Nguyen Steel Co had seen sales drop to 14,000-15,000 tonnes per month from the previous levels of 20,000-30,000 tonnes.

Cuong said some steel makers had to cease production during the last two months, and many had to cut working shifts to handle the downturn.

Hoa Phat Group general director Tran Tuan Duong was quoted by vef.vn as saying the company had to cut 10-15 per cent of its steel production capacity to reduce inventories.

Interest rates, though slashed to below 15 per cent per year, still caused great difficulties for firms. Even at this level, each tonne of steel would cost an extra VND200,000 (US$9.6) per month.

Many producers have said they expected banks to cut rates to as low as 7-9 per cent so that they could improve their production and business activities. They also want the Government to slash the value-added tax from 10 per cent to 5 per cent to help them avoid bankruptcy.

The electricity price hike of 5 per cent at the end of June had caused even more concerns, they said, specifying that electricity prices now accounted for 6-7 per cent of their production costs.

While making a tonne of steel needed about 600kWh of electricity, the 5 per cent hike would raise costs by at least VND39,000 ($1.87) per tonne. A firm producing 40,000 tonnes of steel per month would have to pay VND1.56 billion ($75,000) each month.

Cuong said that although the steel industry was expected to grow 3-4 per cent this year, it would be hard to reach this goal since both steel consumption and consumer prices had been in decline for the last two months.

He added that about 20 per cent of steel enterprises were projected to go bankrupt this year, with many struggling to pay debts and unable to pay their employees.

Vietnam-Italy Steel Co deputy general director Tran Ngoc Anh said local steel companies also faced significant pressure in competing with imported products, especially Chinese goods.

The price of Chinese rolled steel was now about VND1 million ($48) cheaper than domestically produced rolled steel, he added.

Industry insiders specified that Chinese steel makers enjoyed an interest rate of 5 per cent - in contrast to domestic firms, which pay three times that much. Local banks should give local firms more support with regard to interest rates, they said.

Viet Nam Steel Corporation deputy general director Nguyen Trong Khoi said local enterprises should further cut costs, seek new contracts and look to expanding export markets in Southeast Asia, Middle East and North Africa. — VNS

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