Steel makers are puzzled ‘cause of big losses

Steel mills cannot sell products these days. The profits they got earlier this year have been used to cover the big losses incurred in the last months of the year. Some manufacturers accused others of dumping products on the market.

Steel sale goes slowly, losses eat up profits

With the forecast growth rate of minus (-) 7.69 percent for the whole year, 2011 proves to be a very difficult year for the steel industry. Pham Chi Cuong, Chair of the Vietnam Steel Association (VSA) said at a recent meeting with the Ministry of Industry and Trade held several days ago that the steel sales have decreased by 10 percent. The government’s policy on cutting down public investments and the State Bank’s policy on tightening credit both have made the real estate market frozen, thus badly affecting the steel industry.

Cuong said that the steel price has decreased by 200,000-300,000 dong per ton, but the sale still has been going very slowly. Steel mills now have to sell finished steel products at 15 million dong per ton, while the ingot steel – the main material for making steel – is priced at 14 million dong per ton. With such a price, steel makers need to sell finished products at 15.5 million dong per ton at minimum to break even.

Meanwhile, with the current sky high interest rates, no enterprise can afford the interest rates. Steel mills can make a profit of 10 percent only at maximum, while they have to borrow money from banks at the interest rate of 20 percent.

If the current situation cannot be improved, the profits steel enterprises made earlier this year would vanish into the air.

“The scenario repeatedly occurs in the last two or three years: enterprises make profit in the first months of the year, and then incur losses in the next months,” he said.

To date, no steel manufacturer has declared bankruptcy, but a lot of enterprises cannot sell products and have to halt production. The Van Loi Steel Corporation recently announced at its shareholder’s meeting that it would sell one of its production bases.

Cuong said that steel enterprises have been put into such a difficult situation that they have raised an unhealthy competition by dumping their products in the domestic market. However, analysts have pointed out that due to the low demand, steel makers still cannot boost sale, even though they accept to sell products at the price levels lower than the prime costs.

Only some enterprises which have high financial capability and run mills with blast furnace technology, including the Vietnam Steel Corporation, and Hoa Phat, can keep normal production with sufficient materials and capital. Meanwhile, Van Loi and Dinh Vu have reportedly run out of input materials, and they have to keep production at a moderate level.

Ore suppliers also complain that they cannot find buyers these days, because only some steel mills which use blast furnace technologies, want to buy ores.

Cutting down production – the only solution for steel mills to rescue themselves

Tran Tuan Duong, General Director of the Hoa Phat Group, kept calm when saying about the difficulties of steel mills. He said that the difficulties would still exist in the time to come.

Therefore, Duong said, it is necessary to reduce the steel output in the context of the market narrowing. Scaling down production can help reduce the stocks, cut down expenses on energy and financial costs. Hoa Phat, which is the second biggest manufacturer in Vietnam, is now running at just 80 percent of the capacity.

Nghiem Xuan Da, Deputy General Director of the Vietnam Steel Corporation, said that enterprises should try to expand the export markets which can help offset the sale decreases on the domestic market. The current difficult period is the time for steel makers to restructure themselves and rearrange their distribution networks which allow saving costs.

Pham Huyen

Vietnamnet