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VIETNAM STEEL INDUSTRY AND UNEXPECTED FLUCTUATION

Steel plays an important role in the construction industry due to its account for 10 – 30% of each project.

Vietnam steel prices continuously set new peaks

In January 2021, prices of raw steel materials, after a sudden spike at the end of December, decreased in the international and Vietnamese markets before the Lunar New Year holiday. After that, experts forecast that the steel and construction materials market should be stable then. However, contrary to that expectation, the prices of some materials and semi-finished steel products have increased sharply again such as scrap steel, HRC, billet, etc.

In the first week after the Lunar New Year holiday, domestic steel prices reached an average of about 14,500 – 15,100 VND/kg depending on specific product types and brands. In March 2021, prices of raw steel materials continued to increase sharply as compared to the first week of February. Thus, from the beginning of 2021 up to now, domestic steel price has increased by 40%-50%. Escalating steel prices have put construction enterprises into tough situations.

steel-industry-Vietnam

Source: VIRAC, VSA

What caused the “craze” of steel prices in the first months of 2021?

Raw material prices increase (steel ore, scrap steel, billet)

In fact, Vietnam steel industry still depends on the import of raw input materials. The industry needs about 15 million tons of iron ore every year, but the domestic supply only meets about 10% of the demand. According to the Vietnam Steel Association, the price of iron ore as of early March 2021 was over 170 USD/ton CFR (Cost and Freight) at Tianjin port (China), an increase of 55% compared with the end of 2020 and doubled year over year. By the beginning of May 2021, the ore price reached 189.4 – 189.9 USD/ton, a sharp increase of 18.8 USD/ton. 3 days later on May 7, 2021, the trading price of ore was 210 – 212 USD/ton CFR.

Similarly, the import price of steel scrap at Dong A port on April 6, 2021, was at 442 USD/ton CFR, down 18 USD/ton compared to the beginning of March 2021. It soon reached 466 USD/ton CFR by the beginning of May 2021.

Regarding steel billet, as of April 6, 2021, the price of steel billet is at 633 USD/ton, an increase of 30 USD/ton compared to the beginning of March 2021 and about 200 USD/ton compared to the same period in 2020.

Global steel supply declined

China has continuously cut down production since 2016 and closed factories using old polluting technology due to the policy of environmental protection and reducing pollution caused by steel mills. The government encourages manufacturers to use electric arc furnaces. This event may have pushed steel prices higher. 

In North America and Europe, the main imports are flat steel products. Canada, Russia, South Korea, and Turkey specialize in exporting to this market. Many factories in these countries have closed completely because steel prices are not competitive enough, which has reduced supply output and pushed up steel prices.

China’s demand for imported raw steel increases, pushing the world steel price floor higher

In a recent report, the General Statistics Office said that steel prices have been affected by China’s scrap import policy, affecting the global scrap market demand in 2021. China has successfully controlled the Covid-19 epidemic and implemented economic stimulus measures such as infrastructure investment to initiate the implementation of the 5-year socio-economic development plan (2021-2025).

Steel demand in China increased after the epidemic to enable recovery momentum and economic stimulus measures. Steel prices on the Chinese market continued to increase sharply due to the construction season and concerns about reduced output due to environmental protection policies.

Vietnam’s government steps towards this situation

The Government advocates reducing import tax rates for raw steel to support manufacturing enterprises.

The Ministry of Industry and Trade requested the Prime Minister to direct the Ministry of Finance to issue a policy on regulating import taxes for some steel products with large fluctuations in price. A representative of the Tax Policy Department said that Government needs to consider reducing the import tax on finished steel products at this time, in order to avoid affecting Vietnam steel industry. 

Currently, the import tax rate for raw steel materials ranges from 0% – 3%, depending on the type, to promote domestic steel production. The import tax rate for finished steel products is currently 15% for section steel, angle steel, and 20% for rod steel. According to the Ministry of Finance, these are tax rates in compliance with international commitments and import-export tax regulations. With safeguard tax measures, the Ministry of Industry and Trade is currently applying a safeguard level of 15.3% for imported billet, and 9.4% for long steel and will gradually decrease in the next 2 years.

The Tax Policy Department said that it is possible to consider adjusting these safeguard tax policies to reduce the cost of input materials and the selling price of construction steel in the near future. country. Besides, the most important thing is to focus on solutions to balance supply-demand and improve domestic steel production capacity. 

In addition, the Ministry of Industry and Trade forecasted that in 2021, Vietnam steel industry will continue to import many types of raw materials for steel production such as iron ore about more than 18 million tons, scrap steel about 6 – 6.5 million tons, coking coal about 6.5 million tons.

 

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