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Production pruning - Vietnam to close small scale steel mills

The Vietnam Steel Association has anticipated that a lot of small scale steel mills will have to shut down because they cannot compete as a result of overproduction.

Mr Pham Chi Cuong chairman of Vietnam Steel Association said that the supply has doubled demand. Meanwhile, from now to 2012, a lot more steel mills with the capacity of 6 to 7 million tonnes per annum will be put into operation. He added that by that time, competition among steel producers will become stiffer. A lot of small scale steel mills will have shut down and become a heavy burden to the localities.

He went on to say the steel industry has witnessed a boom in recent years. Local authorities, which all wanted to have steel mills in their localities to help develop the local economy, have ignored warnings about possible over supply.

In recent months, Vietnamese steel producers have had to lower sale prices in order to compete with ASEAN sourced steel which overflowed into Vietnam’s market. ASEAN sourced steel products, which enjoy the zero import tariffs within the framework of the ASEAN Free Trade Agreement.

However, Mr Cuong thinks ASEAN’s steel is just the temporary threat, because ASEAN countries are just trying to sell steel to Vietnam at low prices when their steel products are redundant. Meanwhile, the biggest threat to Vietnam’s steel is China’s steel. China is a big steel producer, while the Government of China always apply comprehensive policies, including monetary, finance, and tariff policies that efficiently support their exports.

Regarding the sale prices, Mr Cuong said steel mills have raised sale prices again since mid November 2009 after they slashed the sale prices three times before. He explained that in October 2009, domestic producers had to slash sale prices continuously because of an overflow of steel from China and ASEAN, and now needs to raise sale prices to offset losses, when the market has shown signs of recovery. Besides, the dollar price increases, the higher ingot steel, scrap and finished steel products in the world market all have forced steel producers to raise prices.

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