High risk of bankruptcy exists for iron & steel manufacturers

According to the Vietnam Steel Association (VSA), in 2015, Vietnam imported 19.83 million tons of steel, including 9.6 million tons from China. VSA has also reported that the ingot steel imports in the first months of 2016 were double the imports of same period last year, forecasting that the total ingot steel imports in 2016 would increase by twofold. It has warned that the domestic ingot steel would be dominated by imports by 2017, and if so, a series of domestic enterprises would go bankrupt. Le Phuoc Vu, president of Hoa Sen Group, said at the year-end meeting with customers that the total consumption of domestic enterprises in 2015 was 2.6 million, down by 20%, or 500,000 tons compared with the year before. This means that the enterprises lost VND9.3 trillion.

Pham Chi Cuong, former chair of VSA, noted that for every 2 million tons of ingot steel imports, 4-5 steel mills would have to shut down, because the volume is the output of 4-5 plants.

About 1.9 million tons of ingot steel is imported to Vietnam a year, while the total capacity of domestic steel mills is 12 million tons a year. Vietnam imports 1.6 million tons of rolled steel, while domestic mills can churn out 1.1 million tons. Nguyen Thanh Trung, CEO of Ton Dong A JSC, commented that the 25-30% export growth prove to be acceptable, but the 50% increase is ‘really worrying’. The problem is that Chinese steel products have been sold very cheaply in Vietnam at prices even lower than the Vietnamese enterprises’ production costs, though most of them have low quality. Steel manufacturers have reported unsatisfactory business results for the fourth quarter of 2015. Tien Len JSC had revenue increasing slightly by 11.2%, but reported profit of minus VND127 billion because of the capital cost increase of 27.7%. The HCM City Metal JSC also reported a loss of VND39 billion, while it made a profit of VND5 billion in the same period last year. Viet Y Steel took a profit of VND26 billion. Exporting steel to the US

While many businesses keep complaining about difficulties, Hoa Phat and Hoa Sen still can make stable profits. Analysts say exports can help them achieve success.

Hoa Sen last week exported 20,000 tons of sheet metal to the US, worth US$10 million. Tran Tuan Anh, Deputy Minister of Industry and Trade, said that this was a breakthrough for the corporation and the steel industry in general.