Vietnam sees delays in foreign steel projects

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31 Aug 2009

Multi-billion dollar foreign steel projects in Vietnam are likely to face delays because of the global economic slump, even though demand in the country is forecast to grow 20% this year and 10-15% next year. Foreign investors, including Taiwan’s Formosa, India’s Tata Steel, South Korea’s Posco and Malaysia’s Lion Industries, have pledged to invest nearly US$30 billion in steel projects with total capacity of about 25-30 million tons by 2025.
But Pham Chi Cuong, chairman of the Vietnam Steel Association, which groups the country’s major producers, said the global economic slump would hobble on those plans.
“Most of the big foreign-invested steel mill projects are likely to be delayed because of their internal difficulties, such as finances,” he said in an interview on August 27.
Cuong said the two partners in the country’s biggest steel project to date, a $10 billion joint venture between state-owned ship builder Vinashin and Malaysia’s Lion Group, had problems coming up with the money for the required investment.
The only foreign company that had made any progress recently was Taiwan’s Formosa, with its $7.8 billion mill project in Vung Ang, in central Vietnam, Cuong said.
India’s Tata Steel was still sorting out a “land allocation” issue for the plant’s site with authorities in Ha Tinh province for its $5 billion project, he said.
No great leap forward
Half of Vietnam’s annual consumption this year of about 11 million tons will be imported but domestic producers had already voiced concerns about oversupply once all proposed steel mills are up and running within the next five years.
“There are many question marks around how realistic these foreign invested projects are, given all the problems they are facing, both internally and externally,” Cuong said.
“There will not be a Great Leap Forward here for the steel industry,” he said.
The industry had a painful start to the year, with a slump in prices and demand. Some companies slashed work shifts by as much as two-thirds and cleared inventories by selling at a loss to service bank debt, Cuong said.
A chunk of money from the government’s stimulus package, which the Prime Minister’s office has valued at $8 billion, has gone into housing for the poor and infrastructure, buoying steel demand, which he said would rise more than 20 percent to 11 million tons in 2009.
“The worst is behind us but we still cannot be too optimistic because of the uncertainty in the recovery and the fast rises in world commodity prices,” he said.
Demand would increase 10-15 percent next year, he added.
Prices have jumped nearly 40 percent so far this year and are set to rise around 5 percent between now and the end of the year thanks to robust demand, said Cuong, a former deputy director of top state-owned steel group Vietnam Steel Corp.
Hence demand for scrap steel, the main source of feedstock for Vietnam’s mills, are expected to jump around 35 percent this year compared to 2008 to 2 million tons, Cuong said.
At present the country does not import any iron ore as a few of its mills are designed to use iron ore but if the foreign-invested projects are completed they would have to import iron ores from mines in Laos, Australia and Brazil from 2012, Cuong said.

Source: Reuters